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If the firm's goodwill is ₹75,000 and the retiring partner's share in the old profit-sharing ratio is \(\frac{1}{5}\), what amount is payable to the partner as compensation for goodwill?

Answer and explanation

Correct answer: ₹15,000

Compensation for goodwill = Total goodwill × the retiring partner’s old profit-sharing ratio = \(₹75,000 \times \frac{1}{5} = ₹15,000\). Therefore, option A is correct. Option B would result from using a \(\frac{1}{3}\) share instead. Exam tip: Always multiply the firm’s goodwill by the retiring partner’s old share to find the amount payable.

Related tags

AccountancyGoodwillPartner RetirementCompensationNumericalGoodwill SettlementReconstitution Retirement Or Death Of A PartnerClass 12 Mcq

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