M and N are partners sharing profit in the ratio of 3 : 1. They admit O as a new partner on 1st April, 2022. O brings ₹40,000 as his share of premium and the new profit sharing ratio is 2 : 2 : 1. Identify the correct option related to treatment of Goodwill.
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → Premium for Goodwill A/c Dr. ₹40,000; N's Capital A/c Dr. ₹30,000; To M's Capital A/c ₹70,000
O brings ₹40,000 for 1/5 share, so the firm’s goodwill = ₹40,000 × 5 = ₹2,00,000
M: old 3/4, new 2/5, sacrifice = 15/20 − 8/20 = 7/20
N: old 1/4, new 2/5, gain = 8/20 − 5/20 = 3/20
M is compensated 7/20 × ₹2,00,000 = ₹70,000
From O’s premium: ₹40,000; from N, who gains: 3/20 × ₹2,00,000 = ₹30,000
Premium for Goodwill A/c Dr. ₹40,000 and N’s Capital A/c Dr. ₹30,000, To M’s Capital A/c ₹70,000
NCERT (2026-27 edition): |