Question

Piyush, Rajesh and Avinash were partners in a firm sharing profits and losses equally. Shiva was admitted as a new partner for an equal share. Shiva brought his share of capital and premium for goodwill in cash. The premium for goodwill amount will be divided among:

• A. Old partners in old ratio
• B. New partners in new ratio
• C. New partners in sacrificing ratio
• D. Old partners in sacrificing ratio

Hint:

When a new partner brings goodwill in cash, it is credited to the old partners in the sacrificing ratio because they give up a portion of their profit share.

Answer 1

The Correct Option is D

Step 1: Understanding admission of a partner.
When a new partner is admitted into a partnership firm, the existing partners sacrifice a portion of their profit share to accommodate the new partner. Because of this sacrifice, the new partner usually brings a premium for goodwill as compensation to the existing partners.

Step 2: Meaning of sacrificing ratio.
The sacrificing ratio represents the ratio in which the old partners give up a part of their profit share in favour of the new partner. This ratio determines how the goodwill brought by the new partner should be distributed among the old partners.

Step 3: Distribution of goodwill premium.
The premium for goodwill brought by the new partner is credited to the capital accounts of the old partners in the ratio in which they sacrifice their share of profits. Therefore, the amount is not distributed in the new ratio or among the new partners.

Step 4: Conclusion.
Thus, the goodwill premium brought by Shiva will be distributed among the old partners in the sacrificing ratio.
Final Answer: Old partners in sacrificing ratio.