Question

The amount which a new partner pays for the sacrifice made by other partners is called _______.

• A. capital reserve
• B. goodwill
• C. reserve capital
• D. reserve

Answer 1

The correct option is B goodwill

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 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)