Can any body give me a brief note on treatment of goodwill at the time of admission of a partner. pls give me journals also.
1st method
Private distribution of goodwill
Under this method , new partner gives his share of goodwill to old partners personally .So there is no need to record it to the books of firm . No journal entry will pass .
2nd method
Goodwill is given in cash form by new partner
Under this method , old partner bring his share of goodwill in cash form in the firm and it is taken by old partner in their sacrifice ratio . For this following journal entry pass in the books of firm
Cash / Bank Account Debit xxxxxxxxx
To Goodwill / Premium Account xxxxxxxxxx
Goodwill account debit xxxxxxxx ( share of new partner’s goodwill )
To old partner’s capital account xxxxxxx ( divide in sacrifice ratio )
3rd method
when new partner bring goodwill in cash in business and taken by old partner and then withdraw by old partner
Above two entries will pass as same as in second method but third new entry will pass
Old partner’s capital account Debit xxxxxxxxxxx
To cash / bank account xxxxxxxx
4th method
when new partner do not bring goodwill in cash form
If new partner do not bring goodwill in cash in firm , then following entry will pass for the adjustment of goodwill .
New partner’s capital account debit xxxxxxxx (share of goodwill )
To old partner’s capital account xxxxxxxxx (division in sacrifice ratio)
5th method
If partial in cash form of goodwill
Part of cash goodwill
Cash account dr. xxxxxx
To goodwill / premium account xxxxxxxx
Goodwill account debit ( cash goodwill) xxxxxxxxx
New partner account debit ( not in cash goodwill ) xxxx
To old partner capital account in sacrifice ratio xxxxxxx
6th method
If goodwill already exits in balance sheet of old partner , then it must be transfer to old partner’s capital account in old ratio . Other method is same above from 1 to 5 method .
Entry passed for transferring of old goodwill
Old partner’s capital account debit xxxxxxx
To goodwill xxxxxxx
7th method
If new partner brings other asset as goodwill of his share of goodwill . Then following entry will pass
Asset account debit xxxxxx
To goodwill account xxxxxxxx
Goodwill account debit xxxxxxxxx
To old partner’s capital account in sacrifice ratio xxxxxxxxxx
Sanket
(!..Live to Give..!)
(16427 Points)
Replied 21 November 2011
Accounting treatment of goodwill at the time of admission of a partner is classified in four parts:
(1) When new partner pays amount of goodwill privately: In this case no entry will be passed in the books of the firm.
(2) When new partner brings his share of goodwill in Cash or kind. In this case the following entries are passed:
Cash / Bank/ Assets A/c Dr.
To New Partner’s Capital A/c (for amount of capital)
To Premium A/c (for amount of goodwill)
Premium A/c Dr.
To Old Partner’s Capital A/cs
Old Partner’s Capital A/c Dr.
To Cash/Bank A/c
3) When new partner does not bring his share of goodwill in cash.
In this case new partner’s share of goodwill is charged to his capital account and t/f to old partner’s capital accounts in their sacrificing ratio. Entries for this will be:
(i) For amount of capital brought in by new partner
Cash / Bank/ Assets A/c Dr.
To New Partner’s Capital A/c
(ii) For new partner’s share of goodwill credited to old partner’s capital accounts in their sacrificing ratio
New Partner’s Capital A/c Dr.
To Old Partner’s Capital A/cs
(iii) When old partners withdraw the amount of goodwill.
Old Partner’s Capital A/c Dr.
To Cash/Bank A/c
4) When new partner brings only a part of his share of goodwill in cash or kind.
In this case amount brought in by new partner as his share of goodwill t/f to old partner’s capital accounts in their sacrificing ratio and the amount that is not brought in by him is charged to his capital account and is also t/f to old partner’s capital accounts in their sacrificing ratio. Entries will be in following manner:
Cash / Bank/ Assets A/c Dr.
To New Partner’s Capital A/c (Amount of Capital)
To Premium A/c (Amount of Goodwill brought in by new partner)
Premium A/c Dr.
To Old Partner’s Capital A/cs
New Partner’s Capital A/c Dr.
To Old Partner’s Capital A/cs...
shwetha
(CWA learner)
(447 Points)
Replied 22 November 2011
very helpful notes from Nisha and Sanketh. thq so much.
GSTR 9 and 9C for FY 23-24 as amended by Notification 12/2024 dated 10th July 2024(with recording)
CAclubindia
