Question

Y & W were in partnership sharing profit & losses equally. They admit S as a partner and decide to share profits equally. Goodwill is valued at Rs.$60,000$ but is to be immediately written off. The effect of this on Y's capital would be to ___________.

• A. increase it by $Rs.10,000$
• B. increase it by $Rs.30,000$
• C. decrease it by $Rs.20,000$
• D. decrease it by $Rs.10,000$

Answer 1

The correct option is A increase it by $Rs.10,000$

At the time of admission of a new partner, goodwill brought in by new partner is distributed among sacrificing partner in their sacrificing ratio.

Old ratio (Y and W) = 1 : 1

New ratio (Y, W and S) = 1 : 1 : 1

Sacrificing ratio = Old ratio - New ratio

Y's sacrifice = (1/2) - (1/3) = 1/6

W's sacrifice = (1/2) - (1/3) = 1/6

Therefore, 1/6th of goodwill Rs. 60000 i.e., Rs 10000 is credited to Y's capital account, it means Y's capital account is increased by Rs. 10000