Goodwill treatment
CHAITRI SUDHAKARBHAI KHAROD (ARTICLE) (752 Points)
21 June 2020CHAITRI SUDHAKARBHAI KHAROD (ARTICLE) (752 Points)
21 June 2020
yasaswi gomes
(My grammar is 💯 good I)
(7290 Points)
Replied 21 June 2020
When a new partner joins, he is bringing in goodwill= The combined capital of old partners minus the new capital bought in by third partner. This belongs to the old partners because they allowed him to get partnership and entitled to get rewarded for this. This is why old ratio is used to calculate goodwill because only partners will retain goodwill in their capital accounts proportionate to their old ratio.
Next, when a company does not want to carry forward the goodwill to next year, company will write it off. So, the old goodwill amount which arose when the partner joined will be revalued in the new partnership ratio. Then all of these revalued goodwill amounts will be eliminated from all partners capital accounts.
CHAITRI SUDHAKARBHAI KHAROD
(ARTICLE)
(752 Points)
Replied 22 June 2020