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Difficulty: EasyAdmission of a New Partner

Tunde and Folake are partners in an architectural firm sharing profits and losses in the ratio of 3:23:2. They agree to admit Ibrahim as a new partner with a 14\frac{1}{4} share in the profits of the firm. If the total goodwill of the firm is valued at ₦20,000\text{₦}20,000, what is the amount of goodwill premium in Naira that Ibrahim must bring in for his share?

Answer: 5000 ₦

Answer

The amount of goodwill premium that Ibrahim must bring in is 5,000 (or ₦5,000).
Upon admission, an incoming partner is required to bring in a goodwill premium equal to their fraction of the total goodwill valuation. Multiplying the total goodwill of ₦20,000 by Ibrahim's profit share of 1/4 yields ₦5,000.

Step-by-Step Solution

1
Determine the incoming partner's profit share
Ibrahim's share of profits is 1/4
The terms of admission grant Ibrahim a 1/4 share of total future profits.
2
Compute the incoming partner's share of goodwill premium
₦20,000 × (1/4) = ₦5,000
A new partner must contribute goodwill premium proportional to the share of profits acquired.

Key Concept

Calculation of Incoming Partner's Share of Goodwill Premium
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Topics

Admission of a New Partner

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