Partner A has capital ₹60,000 and Partner B has capital ₹40,000. Their profit–sharing ratio is 3:2. After two years, Partner C wishes to join with a capital of ₹20,000. The goodwill of the firm is to be taken as 8% of the average profit of the last two years, which were ₹50,000 and ₹70,000. Goodwill is to be shared between A and B in their existing profit‑sharing ratio. How much goodwill must C pay on admission?
Answer
₹4,800
The correct answer is ₹4,800 — Answer: ₹4,800
Step-by-step solution
- Compute average profit of last two years: .
- Calculate goodwill: 8% of .
- Since goodwill is shared between A and B, C must pay the whole goodwill amount of ₹4,800.
- Answer: ₹4,800
Common mistake: Adding A and B’s shares instead of using total goodwill amount for C
Concept tested: Goodwill calculation on admission
Published · How this solution was prepared and checked
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