A Level Accounting (9706)•9706/12/M/J/19
Explanation
Goodwill payment via sacrifice method on admission Steps:
- Old shares: X = 2/3, Y = 1/3 of profits.
- New shares: X = 2/5, Y = 1/5, Z = 2/5 of profits.
- Sacrifices: X = 2/3 - 2/5 = 4/15; Y = 1/3 - 1/5 = 2/15; ratio 2:1.
- Total premium by Z = Z's share × goodwill = 2/5 × 36,000; to X = 2/3 × 24,000.
Why B is correct:
- B matches the premium Z pays to X per partnership accounting rule, where incoming partner's goodwill payment compensates old partners in their sacrifice ratio (here 2:1).
Why the others are wrong:
- A: Equals $90,000 / 5, mistakenly treating Z's share as 1/5 instead of 2/5.
- C: Equals half of goodwill, ignoring ratio-based sacrifice calculation.
- D: Equals 2/3 × $90,000, wrongly using only X's old share without new ratio adjustment.
Final answer: B
Topic: Types of business entity
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