Question

In the ABC partnership (to which Daniel seeks admittance), the capital balances of Albert, Bert, and Connell, who share income in the ratio of 5:3:2 are:
Albert 500000
Bert 300000
Connell 200000

Based on the preceding information, what amount of goodwill will be recorded if Daniel invests $450,000 for a one-third interest?
A. $0
B. $10,000
C. $50,000
D. $100,000

Answer 1

Answer: Option (c) is correct.

Explanation:

Given that,

Income sharing ratio = 5:3:2

Albert's capital = $500,000

Bert's capital = $300,000

Connell's capital = $200,000

If Daniel invests $450,000 for 1/3 rd interest then,

Total capital = $500,000  + $300,000  + $200,000

                     = $1,000,000

Therefore, total capital of the partnership will be;

= $1,000,000\times\frac{3}{2}$

= $1,500,000

So,

Share of Daniel will be = $1,500,000 – $1,000,000

                                      = $500,000

Hence,

Value of Goodwill = Share of Daniel - Amount invested by Daniel

                              = $500,000 - $450,000

                              = $50,000