13 November 2011
PLEASE explain this journal entry regarding ADMISSION OF A PARTNER when a new partner pays in cash his share of goodwill the journal entry CASH A/C....DR TO GOODWILL A/C
AND........... GooDWILL A/C....DR TO OLD PARTNERS CAPITAL A/C
PLEASE EXPLAIN THIS (CASH A/C IS DEBITED BECAUSE CASH ASSET COMES IN.....RULE- DEBIT THE RECEIVE AND CREDIT THE GIVER BUT WHY IS GOODWILL A/C CREDITED ????????????????)
13 November 2011
hi, My Friend Goodwill is a capital receipt. It is not compulsary to display goodwill in balance sheet. Like u goodwill may be write off from books display in second entry,
hence Goodwill is a intangible asset. If u think deeply u may found that in really goodwill have no effect. once credited and then debited. It is a capital receipt hence credited.
13 November 2011
Further, It is deemed that goodwill has been generated due to the old partners and that's why they deserve the Credit for the same. You can say here the old partner's are "Giver" as they are compromising with the reduced share in the firm.
CAclubindia
