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If goodwill is brought in cash and (3/8) of the amount is withdrawn what final cash effect will remain?

Answer and explanation

Correct answer: Cash will increase by (5/8) of goodwill

Direct answer: Option A, cash increases by 5/8 of the goodwill amount. Let the goodwill brought in be G. First, the full amount G enters the business as cash. Then 3/8 of G is withdrawn. The cash left in the business is G − 3G/8 = 5G/8. Thus the final cash effect is an increase of 5/8 of goodwill. Option A is correct. Option B, 3/8, is the amount withdrawn, not the amount remaining. Option C is wrong because cash first comes in and only part is taken out, so there is a net increase. Option D is wrong because cash does not decrease by the full amount; the business retains 5/8 after the withdrawal. For example, if goodwill is ₹8,000, ₹8,000 comes in, ₹3,000 leaves, and ₹5,000 remains. Memory cue: amount received minus amount withdrawn = amount retained.

Related tags

Cash EffectRetained GoodwillReasoning

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