Assertion: A and B are partners sharing profits in the ratio of 2:1. They admit C as partner w.e.f. 1st January 2022. On that date, Goodwill existed in the books at Rs 1,00,000. Goodwill of Rs 50,000 was written off by debiting capital accounts of A and B in the ratio of 2:1. While balance goodwill was carried forward in the Balance Sheet.
Reasoning: Goodwill existing in the books is purchased goodwill and therefore, is not written off.
Reasoning: Goodwill existing in the books is purchased goodwill and therefore, is not written off.
Answer & explanation
Correct answer: option 4
Goodwill appearing in the books will be written-off by debiting old partners' capital accounts in their old profit sharing ratio. Thereafter new value of goodwill will be given effect by crediting sacrificing partners' capital accounts and debiting new partners' current account. Thus, Goodwill must be written off from the books completely not partially.