Partners A and B have capitals ₹150,000 and ₹250,000 respectively and share profit in the ratio 3:2. After 2 years, partner C wishes to be admitted with a capital of ₹50,000. The goodwill of the firm is to be taken as 10% of the average profit of the last three years, which were ₹80,000, ₹90,000 and ₹100,000. Goodwill is to be shared between A and B in their existing profit‑sharing ratio. How much goodwill must C pay on admission?
Answer
₹9,000
The correct answer is ₹9,000 — Therefore, the amount of goodwill payable by C is ₹9,000.
Step-by-step solution
- Calculate the average profit of the last three years: (₹80,000+₹90,000+₹100,000)/3 = ₹90,000.
- Find 10% of this average profit as goodwill: 10% of ₹90,000 = ₹9,000.
- Since goodwill is shared only between existing partners, C pays the whole amount of ₹9,000 to the firm.
- Therefore, the amount of goodwill payable by C is ₹9,000.
Common mistake: Using the total profit instead of average profit for goodwill
Concept tested: Goodwill calculation on admission
Published · How this solution was prepared and checked
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