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JAMB Principles of Accounts 2006 Question 39

Question 39

Partnership Admission, Retirement and Dissolution

When goodwill is not retained in the business, the entries in the new partners' books will be to debit

  1. A.goodwill account and credit partners' capital account
  2. B.partners' capital account and credit goodwill account
  3. C.cash account and credit goodwill account
  4. D.goodwill account and credit cash account.
Show the answer and explanation

Answer: B (partners' capital account and credit goodwill account)

Explanation

To write off goodwill, the partners' capital accounts are debited (in the new ratio) and the goodwill account is credited.