[amp_mcq option1=”In case memorandum account is opened, the assets and liabilities appear in the new Balance Sheet at their revised values” option2=”In case the newly admitted partner pays cash for his share of goodwill, it will be credited to old partner’s capital accounts in their sacrificing ratio” option3=”All accumulated profits and reserves are to be transferred to the profit and loss adjustment account on admission of a new partner” option4=”When goodwill account is appearing in the books at a proper value, the new partner has to pay proportionate amount by way of good will to the old partners” correct=”option2″]<\/p>\n
The correct answer is: B. In case the newly admitted partner pays cash for his share of goodwill, it will be credited to old partner’s capital accounts in their sacrificing ratio.<\/strong><\/p>\n Explanation:<\/p>\n When a new partner is admitted to a firm, the old partners have to sacrifice their share of profit or goodwill to the new partner. This sacrifice is calculated in the sacrificing ratio, which is the ratio of the old partners’ capital balances to the new partner’s capital balance. The new partner then pays cash to the old partners for their share of goodwill. This cash is then credited to the old partners’ capital accounts in their sacrificing ratio.<\/p>\n Here is an example:<\/p>\n Suppose a firm has two partners, A and B, with capital balances of $100,000 and $50,000, respectively. A new partner, C, is admitted to the firm with a capital balance of $150,000. The sacrificing ratio is 2:1, which means that A sacrifices twice as much as B. The amount of goodwill that A and B have to sacrifice is $50,000 and $25,000, respectively. C pays cash of $50,000 to A and $25,000 to B. The capital balances of A, B, and C after the admission of C are as follows:<\/p>\n A: $100,000 – $50,000 = $50,000 The following journal entries are recorded to reflect the admission of C to the firm:<\/p>\n Cash 50,000 A 50,000 Goodwill 100,000 The journal entry to record the payment of cash by C to A and B is as follows:<\/p>\n Cash 50,000 Cash 25,000 The journal entry to record the increase in C’s capital account is as follows:<\/p>\n Cash 150,000 [amp_mcq option1=”In case memorandum account is opened, the assets and liabilities appear in the new Balance Sheet at their revised values” option2=”In case the newly admitted partner pays cash for his share of goodwill, it will be credited to old partner’s capital accounts in their sacrificing ratio” option3=”All accumulated profits and reserves are to be … <\/p>\n
\nB: $50,000 – $25,000 = $25,000
\nC: $150,000<\/p>\n
\nGoodwill 50,000<\/p>\n
\nB 25,000<\/p>\n
\nC 100,000<\/p>\n
\nA 50,000<\/p>\n
\nB 25,000<\/p>\n
\nC 150,000<\/p>\n","protected":false},"excerpt":{"rendered":"