Question

State the need for treatment of goodwill on admission of a partner.

Answer 1

Goodwill is the result of the past efforts of the existing partners. When a new partner is admitted, he shares into these profits. The old partners need to be compensated for their loss in share. Hence, the new partner brings in some amount known as the goodwill to compensate for this loss. This is why goodwill needs to be revalued during admission of a partner.