admission of partner goodwill
Post on 11-Feb-2017
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VIDYA BHARTI EDUCATIONAL INSTITUTIONS
ACCOUNTING FOR GOODWILL
http://vidyabharti.in/
GOODWILL• Buyer may be willing to pay more for
a business as a going concern because of:
- Good location- Good customer relations- Good reputation- Well-known products- Experienced and efficient employees
and management team- Good relation with suppliers
• The new partner is required to pay for his share of the tangible assets as well as the goodwill, according to the profit-sharing ratio
• On the admission of a new partner, goodwill must be revalued
• However, not all business keep a goodwill account in their books. Goodwill adjustments can be done:– Goodwill account opened– Goodwill account not opened
GOODWILL ON THE ADMISSION OF A NEW
PARTNER
• When the incoming partner pays his share of Firm’s goodwill Privately.
NO ENTRY
GOODWILL CASE 1
• When the incoming partner brings in his share of Firm’s goodwill in cash
Dr Capital account (old partners only)Cr Goodwill account
( Being existing goodwill written off in old ratio )
Write off the existing book value of goodwill ( if any ) appearing in the books of the firm
Dr Cash account Cr To incoming partner’s accountCr To premium for Goodwill Account
( Being the amount brought in by the new partner )
Record the amount brought in by the new partner
GOODWILL CASE 2
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Dr Premium for goodwillCr to sacrificing Partner’s cap Account ( Being the share of incoming partner in the firms goodwill credited to sacrificing partner in their sacrificing ratio )
Give credit for incoming partner share of goodwill to sacrificing partners
Dr Cash account Cr To incoming partner’s accountCr To premium for Goodwill Account
( Being the amount brought in by the new partner )
Record the withdrawal ( if any ) of amount of goodwill by sacrificing partner
GOODWILL CASE 2
• When the incoming partner brings in his share of Firm’s goodwill in Kind
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Dr Capital account (old partners only)Cr Goodwill account
( Being existing goodwill written off in old ratio )
Write off the existing book value of goodwill ( if any ) appearing in the books of the firm
Dr Assets account ( individually )Cr To incoming partner’s accountCr To premium for Goodwill Account
( Being the amount brought in by the new partner )
Record the amount brought in by the new partner
GOODWILL CASE 3
8
Dr Premium for goodwillCr to sacrificing Partner’s cap Account ( Being the share of incoming partner in the firms goodwill credited to sacrificing partner in their sacrificing ratio )
Give credit for incoming partner share of goodwill to sacrificing partners
Dr Cash account Cr To incoming partner’s accountCr To premium for Goodwill Account
( Being the amount brought in by the new partner )
Record the withdrawal ( if any ) of amount of goodwill by sacrificing partner
GOODWILL CASE 3
• WHEN THE INCOMING PARTNER BRINGS IN ONLY PART OF HIS SHARE OF FIRM’S GOODWILL IN CASH
9
Dr Capital account (old partners only)Cr Goodwill account ( Being existing goodwill written off in old ratio )
Write off the existing book value of goodwill ( if any ) appearing in the books of the firm
Dr Cash ( individually )Cr To incoming partner’s accountCr To premium for Goodwill Account
( Being the amount brought in by the new partner )
Record the amount brought in by the new partner
GOODWILL CASE 4
10
D r P r e m i u m f o r g o o d w i l lC r t o s a c r i fi c i n g Pa r t n e r ’ s c a p A c c o u n t ( B e i n g t h e s h a r e o f i n c o m i n g p a r t n e r i n t h e fi r m s g o o d w i l l c r e d i t e d t o s a c r i fi c i n g p a r t n e r i n t h e i r s a c r i fi c i n g r a t i o )
D r I n c o m i n g p a r t n e r ’ s c a p A / C ( w i t h u n p a i d s h a r e o f g o o d w i l l )C r t o s a c r i fi c i n g Pa r t n e r ’ s c a p A c c o u n t
G i v e c r e d i t f o r i n c o m i n g p a r t n e r s h a r e o f g o o d w i l l t o s a c r i fi c i n g p a r t n e r s
D r C a s h a c c o u n t C r To i n c o m i n g p a r t n e r ’ s a c c o u n tC r To p r e m i u m f o r G o o d w i l l A c c o u n t
( B e i n g t h e a m o u n t b r o u g h t i n b y t h e n e w p a r t n e r )
R e c o r d t h e w i t h d r a w a l ( i f a n y ) o f a m o u n t o f g o o d w i l l b y s a c r i fi c i n g p a r t n e r
GOODWILL CASE 4
• When the incoming partner does not brings in his part of his share of Firm’s goodwill in cash
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Dr Capital account (old partners only)Cr Goodwill account ( Being existing goodwill written off in old ratio )
Write off the existing book value of goodwill ( if any ) appearing in the books of the firm
Dr Cash ( individually )Cr To incoming partner’s account
( Being the amount brought in by the new partner )
Record the amount brought in by the new partner
GOODWILL CASE 5
12
Dr Incoming partner’s cap A/C ( with unpaid share of goodwill )Cr to sacrificing Partner’s cap Account
( Being the share of incoming partner in firm’s goodwill credited to sacrificing partners in their sacrificing ratio )
Give credit for incoming partner share of goodwill to sacrificing partners
Dr Cash account Cr To incoming partner’s accountCr To premium for Goodwill Account
( Being the amount brought in by the new partner )
Record the withdrawal ( if any ) of amount of goodwill by sacrificing partner
GOODWILL CASE 5
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