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Question
State 'True' or 'False'
On admission of a partner, the amount of goodwill brought in cash is credited to goodwill account.
Options
True
False
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Solution
True
Explanation: As per Accounting Standard 26 issued by The Institute of Chartered Accountants of India (ICAI), if any partner brings in a certain amount of goodwill in cash, then cash/bank account is debited and goodwill account is credited. Such premium is distributed among the sacrificing partners in their sacrificing ratio.
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| Years |
Profit Rs |
|
| I | 4,00,000 | |
| II | 4,80,000 | |
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| IV | Loss | 33,000 |
| V | 2,20,000 |
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Hints:
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Complete the following Table:
| ? | = | `"Total Profit"/"Number of Years"` |
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| Year | 1 | 2 | 3 | 4 | 5 |
| Amount (₹) | 30,000 (Profit) |
40,000 (Profit) |
70,000 (Profit) |
30,000 (Loss) |
50,000 (Profit) |
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P: The normal profits of a similar firm in the industry.
Q: The average profits of the firm.
R: The number of years purchase.
S: The actual capital employed in the business.
