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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
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B
increase it by Rs.30,000
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C
decrease it by Rs.20,000
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D
decrease it by Rs.10,000
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Solution

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

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