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JAMB Principles of Accounts 2007 Question 17

Question 17

Partnership Admission, Retirement and Dissolution

Osei and Yabo were in partnership sharing profits and losses in the ratio of 3:2. On admitting Takwa, the profit and loss sharing ratio was changed to 1:1:1. Suppose Takwa paid ₦30 000 for goodwill, this amount would be

  1. A.credited to Takwa's current account
  2. B.debited to goodwill account
  3. C.shared to all the partners' capital account
  4. D.credited to the old partners' capital account.
Show the answer and explanation

Answer: D (credited to the old partners' capital account.)

Explanation

The new partner pays for a share of the goodwill built by the old partners, so the cash is credited to the old partners' capital accounts.