goodwill

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Ashish (Querist)

04 May 2011
If Goodwill does not appears in the books (self Generated Goodwill), and there is a admission of new partner for 1 by 4th share of profit. He brings nothing as the premium. Now old partners decide to show g/w in the books. Entry for this will be:

G/W A/c Dr. 10000 (say)

To A's capital a/c 6000

To B's capital a/c 4000

Now I want to ask why the incoming partner is not debited for his liability . If in this case g/w would be written off , in that case the capital a/c of incoming partner would have been debited . Then why not in this case?

CA SAURABH GARG

CA SAURABH GARG (Expert)

05 May 2011 Ashish,
As per your question A and B are old partners.
Here you have given credit both the partners for Rs. 6000 and 4000/- means they will get this some later or increase the capital without paying anything. old partner get profit by 10000 against goodwill and new partner loss something and not get credit.

suppose if this time A have balance in capital A/c Rs. 100000 and after new admission he living firm then he will get 104000/-means 4000 as goodwill, which is not available to new partner.

If not satisfied with this ans. let me know.

Ashish

Ashish (Querist)

05 May 2011 I am still not fully satisfied.
The NPSR: 9:6:5. If in this case g/w have to be write off , then Entry will be:
A's capital a/c Dr 4500
B's capital a/c Dr 3000
c's capital a/c Dr 2500
To G/W A/c 10000
Here in this case Net Effect will be :
C's capital a/c Dr 2500
To A's capital a/c 1500
To B's Capital A/c 1000
but if g/w would not be written off the net effect is something different. How could this be happen since the net effect should be same, either write off or not.

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