A & B were partners in a partnership firm. Due to the ill health of B they decided to dissolve the firm. The position of assets and liabilities on the date of dissolution was:
| LIABILITIES | AMOUNT (₹) | ASSETS | AMOUNT (₹) |
| Loan by B | 20,000 | Goodwill | 30,000 |
| Capitals | Furniture | 40,000 | |
| A 1,00,000 | Building | 90,000 | |
| B 1,40,000 | 2,40,000 | Debtors | 50,000 |
| Cash | 50,000 | ||
| 2,60,000 | 2,60,000 |
It was agreed that following transactions will take place:
a) A wanted to start the business in sole proprietorship so he took building and furniture at 10% less than book value.
b) All the debtors proved good except a person C who did not pay ₹10,000
The treatment of goodwill appearing in the balance sheet will be:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Transferred to Debit of Realisation A/c
On dissolution every asset except cash, bank and fictitious assets is closed by transfer to the debit side of the Realisation Account at book value. Goodwill (₹30,000 in this balance sheet) is an intangible asset, not a fictitious one, so it goes to the debit of the Realisation Account like furniture, building and debtors.
Why the other options are incorrect
Option (2) Written off among partners in old ratio — Incorrect. Goodwill is written off among the partners on admission or retirement; on dissolution it is an asset to be realised, so it goes to the Realisation Account.
Option (3) Transferred to Credit of Realisation A/c — Incorrect. The credit side receives liabilities and the amounts realised from assets, not the book value of an asset.
Option (4) Raised and written off — Incorrect. Goodwill is raised and written off only when partners choose to adjust it through capital accounts on reconstitution; here the firm is closing down.
NCERT (2026-27 edition): |