Question

When goodwill is raised on the retirement of a partner, it is credited to ______________.

• A. remaining partners in the new profit sharing ratio
• B. remaining partners in the old profit sharing ratio
• C. all partners in the old ratio
• D. none of the above

Answer 1

Answer: (C)

all partners in the old ratio

At the time of retirement of partner from a partnership firm, there are some necessary adjustments which need to be done like revision of profit sharing ratio, revaluation of assets and liabilities, adjustment for goodwill etc.

If goodwill is raised on the retirement of a partner, it is credited to all partner's in the old ratio and when it is write-off, it is debited to remaining partners in new ratio.

Journal entries for the above are as follows:

1. Goodwill raised

Goodwill A/c Dr.

To All partners capital A/c (old ratio)

2. goodwill write-off

Remaining partners capital A/c (new ratio ) Dr.

To Goodwill A/c