Karan, Nakul and Asha were partners in a firm sharing profits and losses in the ratio $3 : 2 : 1$ . At the time of admission of a partner, the goodwill of the firm was valued at $R s . 2, 00, 000$ . The accountant of the firm passed the entry in the books of account and therefore showed goodwill at $R s . 2, 00, 000$ as an asset in the Balance Sheet. Was he correct in doing so? why?

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Solution

The accountant's decision is not correct because according to AS-26, goodwill should be recorded in the books only when consideration in money or money's worth has been paid for it.

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