At the time of admission of a partner, goodwill is already appearing in the books of account. In which ratio, this goodwill will be written off ?
Answer & explanation
Correct answer: option 3
The correct answer is option 3- Old Ratio
At the time of admission of a partner, goodwill is already appearing in the books of account will be written off in old ratio.
When goodwill is already appearing in the books at the time of admission of a new partner, it is written off among the existing (old) partners in their old profit-sharing ratio, before the new partner is admitted. This is because, The existing goodwill related to the old partners. It must be adjusted among them before the new profit-sharing arrangement takes effect.
Example: If A and B are partners sharing profits in 3:2, and goodwill of ₹50,000 appears in the books. C is admitted in the firm. Journal Entry:
A’s Capital A/c Dr. ₹30,000
B’s Capital A/c Dr. ₹20,000
To Goodwill A/c ₹50,000
So, goodwill is written off in the old ratio.