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Goodwill

jeets (CS ) (461 Points)

23 March 2011

Hello-

If the partnership deed in silent on the calculation of goodwill and the way it needs to be treated at the time of retirement, Is there any rule by which the retireing partner can claim the goodwill amount? If yes. Then what are the methods of calculating the same.
If the partnership deed is silent on the calculation of goodwill and the way it needs to be treated at the time of retirement,

For any reasons if the existing partners disagrees in giving goowill amount to the retiring partner, Is there any legal recourse available for the retireing partner?

Thanks

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4 Replies

Vineet Kumar Singh (Accounts Officer in Bihar State Power (Holding) Co Ltd) (264 Points)
Replied 24 March 2011

There is no specific rule for goodwill, but there are some methods for ascertaining the Goodwill amount. Further for the purpose of distribution at the time of goodwill you can treat it as an simple Fixed assets and distribute the apprtioned value amoung all the partners, Take an example:

A,B & C are partners; assuming 1:1:1 as PSR

Goodwill Rs.90000

1.At the time of retirement,

Goodwill Adjustment A/c Dr.90000

To A's capital 30000

To B's capital 30000

To C's capital 30000

(Being g/w raised)

2. After retirement when C is retired,

A's capital Dr.45000

B's capital Dr.45000

To Goodwill Adjustment A/c.90000

Here the goodwill is being treated as an Fixed Asset. an the retiring partner got his share in that asset, but the asset remains in the business and the remaining aprtners contributes to maintain the balance of the assets.

If we want to keep in goodwill in the balance sheet then we will not pass the second entry. that entry is for writting off the goodwill.

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jeets (CS ) (461 Points)
Replied 24 March 2011

Thank you so much for d rply. bt my 2nd question remains unanswered.For any reason if the existing partner disagrees in giving goodwill amount to the retiring partner, is there any legal recourse available for the retiring partner knowing that the Partnership Deed is silent on GW calculation and payment?

Vineet Kumar Singh (Accounts Officer in Bihar State Power (Holding) Co Ltd) (264 Points)
Replied 24 March 2011

As I have already mentioned that it should be treated as an assets, therefore in case any partners dissagree upon giving him shares in goodwill, then the retiring partners can claim his right in goodwill and take legal action subjected to that all other factors are constant.

It will be treated as all the partners have invested equall amount in forming the asset (Goodwill).

Finally all the partners are legally bound to pay the individuals share.
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