Following matters are taken into consideration while giving accounting effects of goodwill.
1. At the time of admission of a new partner, goodwill appearing in the books (balance sheet) of the old partners is written off among the old partner in their old profit – loss sharing ratio :
|
Old Partners’ Capital/Current A/c Dr.
To Goodwill A/c |
|
……….. |
……….. |
2. When the goodwill permium is paid privately by the new partner to the old partners no entry recorded in the books of accounts of the firm.
3. When premium for goodwill brought in cash by the new partner :
|
Cash/Bank A/c Dr.
To Premium for Goodwill A/c |
|
……….. |
……….. |
4. When premium for goodwilll brought in by new partner i.e. land, building, moter car brought in firm as a goodwill :
|
Respective Assets A/c Dr.
To Premium for Goodwill A/c |
|
……….. |
……….. |
Net worth of the firm should be found out on the basis of capital bring by new partner in the ratio of his profit share :
5. For the distribution of premium for goodwill among the partners in their sacrificing ratio :
|
Premium for Goodwill A/c Dr.
To Old partners’ Capital/Current A/c |
|
……….. |
……….. |
6. If out of old partners’ any partner gains in new profit and loss sharing ratio compared to old profit – loss sharing ratio, then goodwill has to be given to old sacrificing partners :
Premium for Goodwill A/c Dr.
Old Partners’ (gaining partners) Capital/
Current A/c Dr.
To Old partners’ (sacrificing partners)
Capital/Current A/c |
|
………..
……….. |
……….. |
7. When new partner brings his share of goodwill premium in cash and it is withdraws by the old partners :
|
Old partners’ Capital/Current A/c Dr |
|
……….. |
|
|
To Cash A/c |
|
|
……….. |
8. When the new partner is not able to bring his share of premium for goodwill in cash:
New Partners’ Capital A/c Dr.
To Old partners’ Capital/
Current A/c |
|
……… |
……… |
9. When only a part of the premium for goodwill is brought by a new partner in cash :
| (a) |
Cash A/c Dr.
To New partners’ capital A/c To Premium for goodwill A/c (goodwill brought in cash) |
|
……… |
|
| (b) |
Premium for goodwill A/c Dr.
(goodwill brought in cash)
New partners’ capital A/c
(goodwill not brought in cash) Dr. |
|
|
|
10. When the amount of goodwill is not given at the time of admission of a partner, goodwill of the firm is valued on the basis of net worth of the firm or capital of partners.
Here, Net worth of the firm on the basis of capital bring by new partner = Capital of New Partner Profit share of New Partner
Here, Net worth of the firm excluding goodwill = Capital of old partners + Reserves + Capital of New Partners
- Goodwill of the Firm = Net worth of firm on the basis of new Partners’ capital – Net worth of firm excluding goodwill.
- New partners’ share of goodwill = Firm’s goodwill x Profit share of New partner Note : When capital accounts of partners are kept by fixed capital method then goodwill will be recorded to current accounts of partners otherwise it should be noted to capital accounts of partners.
