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Question

State the reason of contributing for goodwill by a new partner at the time of his admission.

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Solution

If the partnership firm is a well established firm and earns profits greater than the normal rate of return on it's capital, the new partner is required to contribute some additional amount known as the Goodwill. This is done to compensate the existing partners for their loss in the super normal profits of the firm due to the admission of the new partner.

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