CA Foundation Exam > CA Foundation Questions > At the time of admission of a new partner, if...
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At the time of admission of a new partner, if the value of goodwill is shown in the books, it is written back by ________
- a)Old partners in old profit/loss sharing ratio
- b)All the partners including the new partner in new profit/loss sharing ratio
- c)Old partners in sacrificing ratio
- d)New partner in gaining ratio
Correct answer is 'A'. Can you explain this answer?
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At the time of admission of a new partner, if the value of goodwill is...
Correct answer: Old partners in old profit/loss sharing ratio
When a new partner is admitted into the partnership, the value of goodwill is often revalued and brought into the books. The treatment for this goodwill depends on the partnership agreement and the method chosen for accounting for goodwill. In general, goodwill is written back by the old partners in their old profit/loss sharing ratio.
Here is the detailed explanation of the process:
1. Calculation of Goodwill: At the time of the admission of a new partner, the value of goodwill is calculated based on the agreed method, such as the average profit method, capitalization method, or super profit method.
2. Credit to Old Partners' Capital Accounts: The value of goodwill is then credited to the old partners' capital accounts in their old profit/loss sharing ratio. This means that the old partners are compensated for the future benefits that they have given up to the new partner.
3. Debit to New Partner's Capital Account: The new partner will bring in their share of goodwill in cash or in any other agreed form. This amount is debited to the new partner's capital account, effectively paying for their share of the future benefits provided by the goodwill.
4. Writing Back of Goodwill: After the above entries, goodwill is written back by the old partners in their old profit/loss sharing ratio. This is done to remove the value of goodwill that was temporarily recorded in the books during the admission process.
In summary, during the admission of a new partner, the value of goodwill is written back by the old partners in their old profit/loss sharing ratio. This ensures that the old partners are fairly compensated for the future benefits they have given up, and the new partner contributes their share of goodwill to the partnership.
When a new partner is admitted into the partnership, the value of goodwill is often revalued and brought into the books. The treatment for this goodwill depends on the partnership agreement and the method chosen for accounting for goodwill. In general, goodwill is written back by the old partners in their old profit/loss sharing ratio.
Here is the detailed explanation of the process:
1. Calculation of Goodwill: At the time of the admission of a new partner, the value of goodwill is calculated based on the agreed method, such as the average profit method, capitalization method, or super profit method.
2. Credit to Old Partners' Capital Accounts: The value of goodwill is then credited to the old partners' capital accounts in their old profit/loss sharing ratio. This means that the old partners are compensated for the future benefits that they have given up to the new partner.
3. Debit to New Partner's Capital Account: The new partner will bring in their share of goodwill in cash or in any other agreed form. This amount is debited to the new partner's capital account, effectively paying for their share of the future benefits provided by the goodwill.
4. Writing Back of Goodwill: After the above entries, goodwill is written back by the old partners in their old profit/loss sharing ratio. This is done to remove the value of goodwill that was temporarily recorded in the books during the admission process.
In summary, during the admission of a new partner, the value of goodwill is written back by the old partners in their old profit/loss sharing ratio. This ensures that the old partners are fairly compensated for the future benefits they have given up, and the new partner contributes their share of goodwill to the partnership.
Most Upvoted Answer
At the time of admission of a new partner, if the value of goodwill is...
Explanation:
When a new partner is admitted to a partnership firm, the existing partners may decide to revalue the assets and liabilities of the firm in order to determine the new partner's capital contribution. This revaluation may result in the creation or reduction of goodwill.
If the value of goodwill is shown in the books at the time of admission, it means that it was already recorded as an asset in the firm's books. In this case, when a new partner is admitted, the existing partners need to write back the value of goodwill.
The correct option is 'A' - Old partners in old profit/loss sharing ratio. This means that the old partners will write back the value of goodwill in their old profit/loss sharing ratio. Here's why:
Reasons:
1. Partnership Agreement: The existing partners had a pre-existing agreement among themselves regarding the sharing of profits and losses. The admission of a new partner does not automatically change this agreement. Therefore, the old partners will write back the value of goodwill in their old profit/loss sharing ratio.
2. Sharing of Past Profits/Losses: The value of goodwill represents the reputation, customer base, and other intangible assets of the firm. These assets have been built over time through the efforts and contributions of the existing partners. Therefore, it is fair that they should bear the impact of the write back of goodwill in their old profit/loss sharing ratio.
3. New Partner's Capital Contribution: The new partner will contribute capital to the firm based on the agreed-upon profit/loss sharing ratio. The value of goodwill is not directly related to the new partner's capital contribution. Therefore, it is not appropriate for the new partner to bear the write back of goodwill.
In summary, when the value of goodwill is shown in the books at the time of admission of a new partner, it is written back by the old partners in their old profit/loss sharing ratio. This ensures fairness and consistency in the distribution of profits and losses among the partners.
When a new partner is admitted to a partnership firm, the existing partners may decide to revalue the assets and liabilities of the firm in order to determine the new partner's capital contribution. This revaluation may result in the creation or reduction of goodwill.
If the value of goodwill is shown in the books at the time of admission, it means that it was already recorded as an asset in the firm's books. In this case, when a new partner is admitted, the existing partners need to write back the value of goodwill.
The correct option is 'A' - Old partners in old profit/loss sharing ratio. This means that the old partners will write back the value of goodwill in their old profit/loss sharing ratio. Here's why:
Reasons:
1. Partnership Agreement: The existing partners had a pre-existing agreement among themselves regarding the sharing of profits and losses. The admission of a new partner does not automatically change this agreement. Therefore, the old partners will write back the value of goodwill in their old profit/loss sharing ratio.
2. Sharing of Past Profits/Losses: The value of goodwill represents the reputation, customer base, and other intangible assets of the firm. These assets have been built over time through the efforts and contributions of the existing partners. Therefore, it is fair that they should bear the impact of the write back of goodwill in their old profit/loss sharing ratio.
3. New Partner's Capital Contribution: The new partner will contribute capital to the firm based on the agreed-upon profit/loss sharing ratio. The value of goodwill is not directly related to the new partner's capital contribution. Therefore, it is not appropriate for the new partner to bear the write back of goodwill.
In summary, when the value of goodwill is shown in the books at the time of admission of a new partner, it is written back by the old partners in their old profit/loss sharing ratio. This ensures fairness and consistency in the distribution of profits and losses among the partners.
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At the time of admission of a new partner, if the value of goodwill is...
A is correct because old goodwill is created by old partners by their hard work and loyalty
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At the time of admission of a new partner, if the value of goodwill is shown in the books, it is written back by ________a)Old partners in old profit/loss sharing ratiob)All the partners including the new partner in new profit/loss sharing ratioc)Old partners in sacrificing ratiod)New partner in gaining ratioCorrect answer is 'A'. Can you explain this answer?
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