How Is Goodwill Calculated for a New Partner?

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Solution

Goodwill is calculated for admission of a new partner in the following two ways:

Premium Method: Under this method, the new partner brings his/her share of goodwill in value of cash and the existing partners share that goodwill in their sacrificing ratio.

Revaluation Method: This method is used when the new partner does not bring the share of his goodwill in the form of cash. Goodwill needs to be raised by debiting the goodwill account and crediting the old partner’s capital account in the old profit sharing ratio.

Also read:

Methods of Valuation of Goodwill

Why Do We Debit Goodwill Account While Distributing It Amongst Old Partners

Treatment of Goodwill

MCQs on Goodwill

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

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