Question : A, B and C are partners sharing profits in a ratio of 5:3:2. D is admitted and new profit sharing ratio is agreed at 1:2:2:1. Goodwill is valued at Rs 1,20,000. What entry will be passed if a goodwill account is to be raised and written off?
Option 1: Goodwill account debited with Rs 20,000 and crediting old partner capital account and in their old profit sharing ratio
Option 2: Debiting Goodwill account debiting Rs 1,20,000 and old partner's capital account crediting and In their new profit sharing ratio
Option 3: All partner's capital account debiting with Rs 1,20,000 and crediting goodwill account with Rs 1,20,000
Option 4: Both 2 and 3
Correct Answer: Both 2 and 3
Solution :
Answer =
Both 2 and 3
When the goodwill account is to be raised then the goodwill account will be debited with Rs 1,20,000 and crediting old partner capital account with Rs 1,20,000 in their old profit sharing ratio.
If the new partners decided that goodwill should not be shown in the new firm books it should be written off
All partner's capital accounts were debited with Rs 1,20,000 and crediting Rs goodwill Rs 1,20,000.
Hence, the correct option is 4.
