Accountancy Part AAdmission of a Partner

A and B are partners, they admit C into partnership. C was asked to p…

A and B are partners, they admit C into partnership. C was asked to pay ₹2,50,000 though his share of capital was estimated ₹2,00,000 only. For what ₹50,000 extra was asked from C?

Answer & explanation

Correct answer: option 4

The correct answer is Option (4) → Goodwill

C’s capital is ₹2,00,000, yet he is asked to pay ₹2,50,000. The extra ₹50,000 is not capital; it is the price of his share in the firm’s established earning power, his premium for goodwill, which goes to the old partners.

NCERT (2026-27 edition):
Admission of a New Partner – “… Moreover, in the case of an established firm which may be earning more profits than the normal rate of return on its capital the new partner is required to contribute some additional amount known as premium or goodwill.”