Lesson eLearning

Which of the following best describes the effect of admitting a new partner on the existing partners’ goodwill account?

easy MCQ 2 marks Class 12 · Accountancy · Accounting for Partnership Firms Fundamentals
  1. Existing partners’ goodwill account is debited and the new partner’s goodwill account is credited.
  2. Existing partners’ goodwill account is credited and the new partner’s goodwill account is debited.
  3. Existing partners’ goodwill account is debited and the new partner’s goodwill account is debited.
  4. Existing partners’ goodwill account is credited and the new partner’s goodwill account is credited.
Answer
Existing partners’ goodwill account is debited and the new partner’s goodwill account is credited.

The correct answer is Existing partners’ goodwill account is debited and the new partner’s goodwill account is credited. — Hence the correct representation is that existing partners’ goodwill is debited and the new partner’s goodwill is credited.

Step-by-step solution

  1. When a new partner is admitted, the goodwill transferred from existing partners is recorded as a debit in the existing partners’ goodwill account.
  2. The new partner’s goodwill account is credited to reflect the amount of goodwill he receives.
  3. Hence the correct representation is that existing partners’ goodwill is debited and the new partner’s goodwill is credited.
Common mistake: Reversing the debit and credit entries

Concept tested: Goodwill accounting on admission

Published · How this solution was prepared and checked

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