S1: In the case of admission of a partner, if the new partner brings his share of goodwill in cash, the existing partners' capital accounts are credited in their sacrificing ratio. S2: If the new partner is unable to bring his share of goodwill in cash, the goodwill account is opened in the books of the firm. Which statement(s) is/are correct? MCQ with Answer and Explanation

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S1: In the case of admission of a partner, if the new partner brings his share of goodwill in cash, the existing partners' capital accounts are credited in their sacrificing ratio. S2: If the new partner is unable to bring his share of goodwill in cash, the goodwill account is opened in the books of the firm. Which statement(s) is/are correct?

A. Both S1 and S2

B. S2 only

C. S1 only

D. Neither S1 nor S2

Answer: Option C

Solution (By JKExamLibrary)

S1 is correct. S2 is incorrect because AS 26 prohibits the recognition of self-generated goodwill in the books; hence, the goodwill account cannot be opened. Instead, the adjustment is passed through the partners' capital accounts.

This question belongs to: Accountancy and Statistics Accountancy and Book Keeping

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