Question

Explain how will you deal with goodwill when new partner is not in a position to bring his share of goodwill in cash.

Answer 1

Sometimes the new partner fails to bring his share of goodwill in cash. In such circumstances, Goodwill account Is adjusted through the old Partners' Capital Account.

In this case, the new Partner's Capital Account or Current Account is debited with his/her share of goodwill and the old partners who sacrifice their share in favour of the new partner are credited in their sacrificing ratio. The following Journal entry is passed in the books of accounts.

$\begin{array}{ccccc}\text{Date}& \text{Particulars}& \text{LF}& \text{Amt.(Dr)}& \text{Amt.(Cr)}\\ & \text{New Partner's Capital A/c}\text{Dr}& & & \\ & \text{To Old Partner's Capital A/c}& & & \\ & \text{(New partner's capital accounts is debited}& & & \\ & \text{with his share of goodwill and sacrificing}& & & \\ & \text{partner's capital account are credited in their}& & & \\ & \text{sacrificing ratio)}& & & \end{array}$