Goodwill Adjustment on Partner Admission

Steps:

• Value goodwill and debit Goodwill account; credit X and Y's capitals equally (old 1:1 ratio).
• Write off goodwill (not retained): debit X, Y, Z's capitals equally (new 1:1:1 ratio); credit Goodwill account.
• Net effect on X: +1/2 goodwill - 1/3 goodwill = +1/6 goodwill (increase).
• Net effect on Y: same as X (+1/6 goodwill, increase); on Z: -1/3 goodwill (decrease).

Why C is correct:

• Old partners gain net from crediting their full old-ratio share before equal write-off in new ratio, while Z only bears write-off (per partnership admission rules).

Why the others are wrong:

• A: Old partners' capitals increase, not decrease, due to initial crediting exceeding their write-off share.
• B: Z's capital decreases from write-off, not increases (misapplies adjustment to new partner).
• D: Z's capital decreases from write-off, not increases.

Final answer: C