Sola and Musa are partners in a consulting firm sharing profits and losses in the ratio of… — JAMB UTME

Sola and Musa are partners in a consulting firm sharing profits and losses in the ratio of $3:1$ . They admit Obinna into the partnership with a $\frac{1}{5}$ share of future profits. Obinna brings in $\text{₦}120,000$ in cash as goodwill premium to be shared by the existing partners. How much goodwill premium will be credited to Musa's capital account?

A
$\text{₦}90,000$
B
$\text{₦}40,000$
$\text{₦}30,000$ Answer
D
$\text{₦}24,000$

Answer

Musa will be credited with

\text{₦}30,000

as his share of the goodwill premium.

Goodwill premium paid by an incoming partner is distributed among existing partners in their sacrificing ratio. Since no special agreement is mentioned, Sola and Musa sacrifice in their original profit sharing ratio of

3:1

. Musa's share is

\frac{1}{4} \times \text{₦}120,000 = \text{₦}30,000

Step-by-Step Solution

Determine the sacrificing ratio of the existing partners

Since no specific sacrifice terms are given, Sola and Musa sacrifice in their old profit sharing ratio of

3:1

When a new partner is admitted without a specified new ratio, existing partners sacrifice in proportion to their old ratio.

Calculate Musa's share of the goodwill premium

\text{Musa's share} = \frac{1}{3 + 1} \times \text{₦}120,000 = \frac{1}{4} \times \text{₦}120,000 = \text{₦}30,000

Goodwill premium brought in cash by an incoming partner is credited to existing partners' capital accounts in their sacrificing ratio.

Key Concept

Distribution of Goodwill Premium upon Admission of a New Partner

Estimated Time:1m 30s

Question

Answer

Step-by-Step Solution

Key Concept

Common Mistakes

Topics

More questions from this topic