If the new partner brings in his share of goodwill in cash and if goodwill also appears in books, how is existing amount of goodwill dealt with?

Open in App

Solution

A new partner may bring in his share of premium for goodwill to compensate for the loss of share of profit of the partners. This premium is distributed among the partners in the sacrificing ratio. However, if goodwill already appears in the books, this existing goodwill is distributed among the partners in their old profit sharing ratio.
The accounting entry for distribution of existing goodwill:
Partners' Capital a/c... Dr.
To Goodwill a/c

Suggest Corrections

Similar questions

If some goodwill already exists in the books and the new partner brings in his share of goodwill in cash, how will you deal with existing amount of goodwill ?

If some goodwill already exists in the books and the new partner brings in his share of goodwill in cash, how will you deal with existing amount of goodwill?

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

George and Henry are partners sharing profits in the ratio of 3 : 2. They decided to admit David as a new partner and to share future profits and losses equally.

David brings in Rs 50,000 as his capital. Goodwill of the firm is valued at Rs 60,000. Record the necessary journal entries :

(a) When no goodwill appears in the books

(b) When goodwill appears at Rs 50,000, and

Q. ___________ method is followed when the new partner does not bring in his share of goodwill in cash.

Join BYJU'S Learning Program