Explain how will you
deal with goodwill when new partner is not in a position to bring his
share of goodwill in cash.?
Explain how will you deal with goodwill when new partner is not in a position to bring his share of goodwill in cash.?
When the new partner is not in a position to bring his share
of goodwill in cash, then goodwill account is adjusted through the old
Partners’ Capital Account. New Partner’s Capital Account or Current Account is
debited with his/her share of goodwill and the 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.
New Partner’s Capital A/c
Dr.
To Old Partners’ Capital A/c
(New partner capital account
is debited with his/her share
of goodwill and sacrificing
Partners’ Capital Account are
credited in their
sacrificing ratio)
NOTE: As per the Para 16 of Accounting Standard
10, goodwill is recorded in the books only when some consideration in
money or money’s worth has been paid for it. This practice is mandatory to
follow. In the case of admission, retirement, death or change in profit sharing
ratio among existing partners, Goodwill Account cannot be raised as no consideration
is paid for it.
When the new partner is not in a position to bring his share of goodwill in cash, then goodwill account is adjusted through the old Partners’ Capital Account. New Partner’s Capital Account or Current Account is debited with his/her share of goodwill and the 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.
|
New Partner’s Capital A/c |
Dr. |
|
|
|
To Old Partners’ Capital A/c |
|
|
(New partner capital account is debited with his/her share of goodwill and sacrificing Partners’ Capital Account are credited in their sacrificing ratio) |
|
|
NOTE: As per the Para 16 of Accounting Standard 10, goodwill is recorded in the books only when some consideration in money or money’s worth has been paid for it. This practice is mandatory to follow. In the case of admission, retirement, death or change in profit sharing ratio among existing partners, Goodwill Account cannot be raised as no consideration is paid for it.
