Question: How is goodwill calculated when a new partner is admitted?

Options:

1. Average profit multiplied by the number of years
2. Total assets minus total liabilities
3. Excess of the purchase price over the net assets
4. Net profit divided by the number of partners

Correct Answer: Excess of the purchase price over the net assets

Solution:

Goodwill is calculated as the excess of the purchase price paid by the new partner over the net assets of the partnership.