Question

Assertion (A): The New partner should bring in his share of goodwill in cash so that the sacrificing partners may be compensated.

Reason (R): The New partner may or may not bring his share of goodwill in cash. New Partner’s Current Account may be debited, and the sacrificing partners’ Capital Accounts credited to compensate them.

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

Options

• Both (A) and (R) are true, but (R) is not the correct explanation of (A).

• Both (A) and (R) are true and (R) is the correct explanation of (A).

• Both (A) and (R) are false.

• (A) is false, but (R) is true.

Answer 1

(A) is false, but (R) is true.

Explanation:

Assertion (A) is incorrect because it states a rigid rule that is not universally mandatory in partnership accounting. While bringing cash is common, it’s not the only method. Reason (R) is correct because it describes a perfectly acceptable and standard alternative procedure: the new partner’s Current Account can be debited to adjust the goodwill amount if no cash is physically brought into the firm, effectively compensating the sacrificing partners via a balance sheet adjustment rather than a physical cash transfer.