X and Y had been in partnership sharing profit and losses in the ratio of 1:2 respectively.
Z was later admitted to the partnership.
It was agreed that the goodwill is valued at $120000. No goodwill account is to be retained in the books of account.
Profit and losses were to be shared between X, Y and Z in the ratio of 2:1:1 respectively.
What was the effect of the goodwill adjustment in X's capital account?

Q: What topic does this question test?

This question tests Partnership Accounts in A-Level Accounting (syllabus code 9706). It is worth 1 mark.

Q: Which exam paper is this question from?

This question appeared in the Cambridge A-Level Accounting Oct/Nov 2018 examination, Paper 1 Variant 2 (9706_w18_qp_12.pdf).

Question

X and Y had been in partnership sharing profit and losses in the ratio of 1:2 respectively.
Z was later admitted to the partnership.
It was agreed that the goodwill is valued at $120000. No goodwill account is to be retained in the books of account.
Profit and losses were to be shared between X, Y and Z in the ratio of 2:1:1 respectively.
What was the effect of the goodwill adjustment in X's capital account?

Oracle Prep · Accepted Answer

The correct answer is A: decreased by $20000.

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