Question : If the new partner brings the goodwill amount in cash and the goodwill account still has a balance, the goodwill account is wiped down among the previous partners in -
Option 1: The sacrificing ratio
Option 2: The old profit sharing ratio
Option 3: The new profit sharing ratio
Option 4: The gaining ratio
Correct Answer: The old profit sharing ratio
Solution : To make up for the loss of the partners' respective profits shares, a new partner may bring in his share of the goodwill premium. The partners share this premium according to their willingness to sacrifice. If, however, goodwill is already recorded in the books, it is divided among the partners according to their previous profit-sharing arrangements.
The accounting entry for the distribution of existing goodwill:
Partners' Capital A/c... Dr. Dr.
To Goodwill A/c
Hence the correct answer is option 2.
Related Questions
Trending Articles/News
