How Is Goodwill Calculated for a New Partner?

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

  1. 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.
  2. 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.

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