When goodwill is not retained in the business; the entries in the new partners books will be to debit _________?

A. Goodwill account and credit partners capital account
B. Cash account and credit goodwill account
C. Goodwill account and credit cash account
D. Partners capital account and credit goodwill account

Correct Answer:

Option D – Partners capital account and credit goodwill account

Explanation

When goodwill is raised in the books at full value, the entry is

Dr Goodwill Account

Cr Old partners capital account (old ratio)

When the raised goodwill is written off, entry will be:

Dr All partners capital account

Cr Goodwill accounts

Note: goodwill written off includes new partners in the new profit sharing ratio