X and Y are partners sharing profits in the ratio of 3 : 1. They admit Z as a partner who pays ` 4,000 as goodwill. The new profit ratio being 2 : 1 : 1 among X, Y and Z respectively. The amount of goodwill will be credited to ................. .

The correct answer is - X only

Key Points

• Goodwill Contribution
  • When a new partner is admitted, they may pay goodwill to compensate the existing partners for their sacrifice of profit share.
  • In this scenario, Z pays ₹ 4,000 as goodwill.
• Profit Sharing Ratio Adjustment
  • The existing partners X and Y are sharing profits in the ratio of 3:1.
  • After Z's admission, the new profit-sharing ratio becomes 2:1:1 among X, Y, and Z respectively.
• Sacrificing Ratio
  • The sacrificing ratio is calculated as the difference between the old profit ratio and the new profit ratio.
  • X's sacrifice: Old share = 3/4, New share = 2/4. Sacrifice = 3/4 - 2/4 = 1/4.
  • Y's sacrifice: Old share = 1/4, New share = 1/4. Sacrifice = 1/4 - 1/4 = 0.
  • Thus, only X sacrifices a portion of their profit share.
• Goodwill Allocation
  • Goodwill is credited to the partners who make a sacrifice in the profit-sharing ratio.
  • Since only X sacrifices, the entire goodwill amount of ₹ 4,000 is credited solely to X.

Additional Information

• Goodwill Accounting
  • Goodwill is treated as compensation for the sacrifice made by existing partners.
  • It is credited to the partner's capital account in proportion to their sacrificing ratio.
• Sacrificing Ratio Formula
  • The formula for calculating the sacrificing ratio is: Sacrificing Ratio = Old Ratio - New Ratio.
  • Partners who sacrifice their share of profits are entitled to goodwill.
• Importance of Profit Sharing Ratios
  • Profit-sharing ratios determine how profits or losses are distributed among partners.
  • Changes in profit-sharing ratios due to admission, retirement, or death of a partner require adjustments in goodwill and capital accounts.