Question

Assertion (A): A and B are partners sharing profits in 3 : 2. They admit C into the partnership, which he takes `1/6` th from A and `1/12` th from B. Goodwill existed in their books at ₹ 60,000. C brought ₹ 1,50,000 as premium for goodwill, and after adjusting the existing goodwill of ₹ 60,000, the balance of ₹ 90,000 was distributed between A and B in the ratio 2 : 1.

Reason (R): Goodwill of ₹ 60,000 existing in the books was written off in the old ratio, and ₹ 1,50,000 brought in by C was distributed in a sacrificing ratio of 2 : 1.

In the context of the above two statements, which of the following is correct?

Options

• (A) and (R) both are correct and (R) correctly explains (A).

• Both (A) and (R) are correct, but (R) does not correctly explain (A).

• Both (A) and (R) are incorrect.

• (A) is incorrect, but (R) is correct.

Answer 1

(A) is incorrect, but (R) is correct.

Explanation:

Reason (R) correctly states the universally accepted accounting principle: existing goodwill must be written off in the old ratio, and the premium brought in by the new partner must be distributed in the sacrificing ratio. Assertion (A), however, describes a flawed calculation method. It wrongly suggests subtracting the written-off goodwill (₹ 60,000) from the incoming premium (₹ 1,50,000) before distribution. These are separate transactions. The full ₹ 1,50,000 should have been distributed to the sacrificing partners, making the procedure detailed in (A) incorrect.