If the goodwill raised at the time of retirement of a partner is to be written off, then the capital accounts of the remaining partners are debited in :
If the goodwill raised at the time of retirement of a partner is to be written off, then the capital accounts of the remaining partners are debited in :
The correct option is A New profit sharing ratio
Goodwill is recorded
in books only when some consideration in money is paid for it. Therefore,
goodwill is recorded in the books only when it is purchased. In case of
reconstitution of a firm, goodwill cannot be raised in the books of accounts as
a consideration for the same is not paid.
If the goodwill is not
bought/ recorded in the books, such goodwill should be adjusted through the
capital accounts of partners. The following journal entries are passed in case
of retirement of a partner.
WHEN THE GOODWILL IS
RAISED WITH FULL VALUE:
Goodwill A/c (
with full value)
Dr.
To All partners capital A/c
(including retiring
partner in old profit sharing ratio)
After the above entry
goodwill will appear in the Balance sheet with full value. As par AS 26 self-
generated goodwill cannot be shown in the balance sheet. Hence, the above
goodwill be written off by continuing partners in new profit sharing ratio by
passing the following entry:
Continuing partners
capital A/c ( in new ratio)
Dr.
To Goodwill A/c (with full value)
Goodwill is recorded in books only when some consideration in money is paid for it. Therefore, goodwill is recorded in the books only when it is purchased. In case of reconstitution of a firm, goodwill cannot be raised in the books of accounts as a consideration for the same is not paid.
If the goodwill is not bought/ recorded in the books, such goodwill should be adjusted through the capital accounts of partners. The following journal entries are passed in case of retirement of a partner.
WHEN THE GOODWILL IS RAISED WITH FULL VALUE:
Goodwill A/c ( with full value) Dr.
To All partners capital A/c
(including retiring partner in old profit sharing ratio)
After the above entry goodwill will appear in the Balance sheet with full value. As par AS 26 self- generated goodwill cannot be shown in the balance sheet. Hence, the above goodwill be written off by continuing partners in new profit sharing ratio by passing the following entry:
Continuing partners capital A/c ( in new ratio) Dr.
To Goodwill A/c (with full value)
