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A. B, C and D Were Partners in a Firm Sharing Profits in the Ratio of 4: 3: 2: 1. on 1-1-2015 They Admitted E as a New Partner for `1/10` Share in the Profits. E Brought Rs 10,000 for His Share of Goodwill Premium Which Was Correctly Recorded in the Books by the Accountant. the Accountant Showed Goodwill at Rs 1,00,000 in the Books. Was the Accountant Correct in Doing So? Give Reason in Support of Your Answer. - CBSE (Arts) Class 12 - Accountancy

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Question

A. B, C and D were partners in a firm sharing profits in the ratio of 4: 3: 2: 1. On 1-1-2015 they admitted E as a new partner for `1/10` share in the profits. E brought Rs 10,000 for his share of goodwill premium which was correctly recorded in the books by the accountant. The accountant showed goodwill at Rs 1,00,000 in the books. Was the accountant correct in doing so? Give reason in support of your answer.

Solution

The accountant has passed the wrong accounting treatment. According to AS 26, during the admission of a partner, if the new partner contributes some amount towards his share of goodwill, then such goodwill should be immediately distributed among the sacrificing partners in their sacrificing ratio. It cannot be shown as an asset in the books of the firm until such goodwill is purchased.

  Is there an error in this question or solution?
Solution A. B, C and D Were Partners in a Firm Sharing Profits in the Ratio of 4: 3: 2: 1. on 1-1-2015 They Admitted E as a New Partner for `1/10` Share in the Profits. E Brought Rs 10,000 for His Share of Goodwill Premium Which Was Correctly Recorded in the Books by the Accountant. the Accountant Showed Goodwill at Rs 1,00,000 in the Books. Was the Accountant Correct in Doing So? Give Reason in Support of Your Answer. Concept: Change in the Profit Sharing Ratio Among the Existing Partners.
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