Goodwill of $80 000 is to be written off immediately after being raised. The remaining partners share profits in the new ratio of 3:1.What amount is debited...
Question 1 Report
Goodwill of $80 000 is to be written off immediately after being raised. The remaining partners share profits in the new ratio of 3:1.
What amount is debited to the partner with the larger share when writing off the goodwill?
Answer Details
The correct answer is $60 000.
When goodwill of $80 000 is written off, each remaining partner's capital account is debited with their share in the new profit-sharing ratio of 3:1.
Partner with the larger share (3/4): $80 000 x 3/4 = $60 000
Partner with the smaller share (1/4): $80 000 x 1/4 = $20 000
The option $20 000 is the smaller partner's share. The option $40 000 would result from splitting equally. The option $80 000 is the total goodwill, not one partner's share.
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