A and N are partners, sharing profits in the ratio 2:1. A's son Ashu was admitted for 1/4th share, half of which was gifted by A to her son. The remaining was contributed by N. The goodwill of the Firm is valued at ₹40,000. How much amount will be credited to the old partner's capital account for goodwill?

₹5,000 each

The correct answer is option 2- ₹5,000 each.

A's son Ashu was admitted for 1/4th share, half of which was gifted by A to her son. The remaining was contributed by N. It mean both partners sacrifice equally.

Goodwill of the firm = 40,000
Ashu share = 1/4
Ashu share in goodwill = 40,000 x 1/4
                                 = 10,000

Ashu will compensate 5,000 each to both partners A and N.

Note: Even though A has gifted a part of her share to her son, she is still entitled to goodwill compensation because she has sacrificed a portion of her profit-sharing ratio in the firm. The gift is a personal arrangement between A and her son; however, from the firm’s perspective, compensation must be provided for the economic sacrifice of profit share.