Which of the following statements are correct?(A) When a new partner…

Which of the following statements are correct?

(A) When a new partner is admitted into partnership firm, sacrificing ratio is used to distribute new partner's share of goodwill.

(B) Hidden goodwill is the excess of Total Capital of the new firm (based on new partner's capital) over the actual combined capital of all the partners.

(D) Employees' Provident Fund should be distributed among the old partners at the time of admission of a new partner.

Choose the correct answer from the options given below:

Answer & explanation

Correct answer: option 4

The correct answer is Option (4) → (A), (B) and (C) only

The statements deal with how a new partner pays for goodwill, how hidden goodwill is found, and what is shared among the old partners on admission.

(A) When a new partner is admitted into partnership firm, sacrificing ratio is used to distribute new partner’s share of goodwill. Correct. The premium he brings goes to the partners who give up share, in the ratio of their sacrifice.

(B) Hidden goodwill is the excess of Total Capital of the new firm (based on new partner’s capital) over the actual combined capital of all the partners. Correct. When goodwill is not stated, the new partner’s capital and share fix what the whole firm is worth, and the excess over the real capital is goodwill.

(C) When a new partner is admitted into partnership firm, the new partner compensates the old partners for their loss of share in the divisible profits of the firm for which he brings in an additional amount that is called as Premium for Goodwill. Correct. He takes a share of future profits from them, and the premium for goodwill pays them for it.

(D) Employees’ Provident Fund should be distributed among the old partners at the time of admission of a new partner. Incorrect. It is money owed to the employees, an outside liability that stays on the balance sheet; only reserves and accumulated profits are shared by the old partners.

NCERT (2026-27 edition):
Sacrificing Ratio – “… As stated earlier, the new partner is required to compensate the old partner’s for their loss of share in the super profits of the firm for which he brings in an additional amount as premium for goodwill. This amount is shared by the existing partners in the ratio in which they forgo their shares in favour of the new partner which is called sacrificing ratio.”

NCERT (2026-27 edition):
Hidden Goodwill – “… Sometimes the value of goodwill is not given at the time of admission of a new partner. In such a situation it has to be inferred from the arrangement of the capital and profit sharing ratio. Suppose, A and B are partners sharing profits equally with capitals of Rs. 45,000 each. They admitted C as a new partner for one-third share in the profit. C brings in Rs. 60,000 as his capital. Based on the amount brought in by C and his share in profit, the total capital of the newly constituted firm works out to be Rs.1,80,000 (Rs. 60,000 × 3). But the actual total capital of A, B and C works out as Rs. 1,50,000 (Rs. 45,000 + Rs. 45,000 + Rs. 60,000). Hence, it can be inferred that the difference is on account of goodwill i.e., Rs. 30,000 (Rs. 1,80,000 – Rs. 1,50,000).”