Treatment of Goodwill

Meaning of Goodwill

Goodwill is an intangible asset that is found in the Balance Sheet of a trading concern. The value of an enterprise’s brand name, solid consumer base, good consumer associations, good employee associations and any patents or proprietary technology represent some instances of goodwill.

When computing for the partnership enterprises, the accounting treatment of goodwill in diverse scenarios is significant :

  • The retiring or deceased partner is authorised to his portion of goodwill during the death or retirement because the goodwill has been earned by the enterprise with the hard work and perseverance of all the existing partners
  • Hence, during the death/ retirement of a partner, goodwill is evaluated as per agreement among the partners the deceased/retiring partner recompensed for his portion of goodwill by the continuing partners (who have gained due to the accretion of the share of gain from the retiring/dead partner) in their gaining ratio

The accounting treatment for goodwill in such a scenario relies upon whether or not goodwill already appears in the books of the enterprise.

The above mentioned is the concept that is explained in detail about Treatment of Goodwill for the class 12 Commerce students. To know more, stay tuned to BYJU’S.