Goodwill a/c

This query is : Resolved

Chintan Patel (Querist)
Follow

13 November 2011 PLEASE explain this journal entry
regarding ADMISSION OF A PARTNER
when a new partner pays in cash his share of goodwill the journal entry
CASH A/C....DR
TO GOODWILL A/C

AND...........
GooDWILL A/C....DR
TO OLD PARTNERS CAPITAL A/C

PLEASE EXPLAIN THIS (CASH A/C IS DEBITED BECAUSE CASH ASSET COMES IN.....RULE- DEBIT THE RECEIVE AND CREDIT THE GIVER BUT WHY IS GOODWILL A/C CREDITED ????????????????)

CA Hardik Bunha

CA Hardik Bunha (Expert)
Follow

13 November 2011 hi,
My Friend Goodwill is a capital receipt.
It is not compulsary to display goodwill in balance sheet. Like u goodwill may be write off from books display in second entry,

hence Goodwill is a intangible asset. If u think deeply u may found that in really goodwill have no effect. once credited and then debited. It is a capital receipt hence credited.

Message likes : 1 times

CA PARAS BAFNA

CA PARAS BAFNA (Expert)
Follow

13 November 2011 Further, It is deemed that goodwill has been generated due to the old partners and that's why they deserve the Credit for the same. You can say here the old partner's are "Giver" as they are compromising with the reduced share in the firm.

Message likes : 1 times

Upgrade to CAclubindia Pro. Subscribe Now!