$X$ and $Y$ are partners sharing profits and losses equally. They admit $Z$ as partner for $1 / 3^{r d}$ share which he takes from $Y$ . $Z$ brings $R s . 50, 000$ as his share of goodwill. $X$ is of the opinion that goodwill brought by $Z$ should be shared equally whereas $Y$ is of the opinion that $R s . 50, 000$ should be credited to his capital $X$ finally agrees to $Y^{'} s$ view.
What argument must been given by $Y$ that made $X$ agree?

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Solution

Premium for goodwill is the additional amount brought in by the incoming partner to compensate the existing partners for their sacrifice in the profits of the firm. Since, Z acquires his entire share from Y, only Y is to be compensated for the loss and it is not to be distributed equally among the partners. Hence, the entire amount of premium is credited to Y's Capital account.

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