When goodwill is received in cash and retained in the business upon admission of a new partner the old partners capital accounts are credited in the

ACCOUNTING

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Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]

When goodwill is received in cash and retained in the business upon admission of a new partner the old partners’ capital accounts are credited in the

A	Capital ratio
B	Sacrificing ratio
C	Old profit sharing ratio
D	New profit sharing ratio

Explanation:

Detailed explanation-1: -(2) When the Goodwill is Received in Cash and Retained in the Business: The amount of goodwill brought in by the incoming partner is taken to the books of account. The existing partners apportion the goodwill among themselves in the sacrificing ratio.

Detailed explanation-2: -Under this method, when the incoming partner brings his share of goodwill in cash, the existing partners share it in the sacrificing ratio. However, when the amount of goodwill is paid privately by the new partner to old partners privately in cash, no entry is passed in the books of the firm.

Detailed explanation-3: -If the new partner brings in his share of goodwill in cash and this amount is retained in the business, the amount is credited to the Capital Accounts of old partners in their sacrificing ratio.

Detailed explanation-4: -The amount in form of ‘Goodwill’ brought by the new partner is given to the old partners in their Sacrificing ratio.

There is 1 question to complete.

GENERAL KNOWLEDGE

GK

ACCOUNTING