Question

Share of goodwill brought in cash by the new partner is shared by the old partners _________.

• A. equally
• B. in the sacrificing ratio
• C. in the new ratio
• D. in the gaining ratio

Answer 1

The correct option is B in the sacrificing ratio

At the time of admission of new partner, old partners sacrifices some of their profit share. To compensate old partners, new partner is liable to bring in some goodwill either in cash or kind which is distributed among old partners in their sacrificing ratio.

The necessary journal entry will be:

1. Bank/Cash A/c Dr.

To Goodwill A/c

2. Goodwill A/c Dr.

To Old partner's capital A/c (Individually in their sacrificing ratio)