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

easy MCQ 2 marks Class 12 · Accountancy · Accounting for Partnership Firms Fundamentals
  1. Goodwill of existing partners increases proportionally.
  2. Goodwill of existing partners is transferred to new partner.
  3. Goodwill of existing partners is written off in sacrificing ratio.
  4. Goodwill of existing partners remains unchanged.
Answer
Goodwill of existing partners is transferred to new partner.

The correct answer is Goodwill of existing partners is transferred to new partner. — Thus the correct statement is that goodwill of existing partners is transferred to the new partner.

Step-by-step solution

  1. Admitting a new partner involves transferring goodwill from existing partners to the new partner in their old profit‑sharing ratio.
  2. The goodwill accounts of existing partners are debited by the transferred amount.
  3. Thus the correct statement is that goodwill of existing partners is transferred to the new partner.
Common mistake: Confusing goodwill transfer with goodwill sacrifice

Concept tested: Effect of new partner admission

Published · How this solution was prepared and checked

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