Lesson eLearning

In a partnership, when a retiring partner's share is bought out at book value, which of the following statements is correct?

easy MCQ 2 marks Class 12 · Accountancy · Retirement or Death of a Partner
  1. a) Goodwill is transferred to the remaining partners
  2. b) No goodwill is transferred to the remaining partners
  3. c) Retiring partner receives a premium on goodwill
  4. d) Remaining partners must contribute additional capital
Answer
b) No goodwill is transferred to the remaining partners

The correct answer is b) No goodwill is transferred to the remaining partners — Select the option that states no goodwill is transferred.

Step-by-step solution

  1. Identify that "book value" means the retiring partner is paid only his capital balance and any undistributed profit, without considering goodwill.
  2. Recall that goodwill is transferred only when the retiring partner is bought out at market value or when goodwill is specifically agreed to be transferred.
  3. Since the buy‑out is at book value, goodwill remains unchanged in the firm and is not transferred to the remaining partners.
  4. Select the option that states no goodwill is transferred.
Common mistake: Assuming goodwill is always transferred regardless of buy‑out value

Concept tested: Buy‑out at book value

Published · How this solution was prepared and checked

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