goodwill

FOR EXAMPLE ::

NEW PARTNER BRINGS RS 50,000 FOR 1/5 SHARE 

SO ON THE BASIS OF NEW PARTNER CAPITAL 

THE TOTAL CAPITAL OF THE FIRM IS 50,000*5 = 2,50,000

EXISTING PARTNER CAPITAL IS RS 80,000 AND 70,000

SO TOTAL CAPITAL INCLUDING NEW PARTNER CAPITAL IS 2,00,000

SO THE GOODWILL IS RS 50,000

when incoming partner acquiring share of profit from continuing partner, incoming partner has to pay his share of goodwill to the continuing partners (old partners ) in their sacrificing ratio only.

for example: A and B were partners with 3:2 ratio. Value of the goodwill is 1,00,000/-

now the point is Mr C is admitted with 1/5th share which is acquired from A. i.e. New profit sharing ratio is 2:2:1. 

A sacrificed 1/5 th share and C acquired 1/5th share from A.

So Mr C has to pay 1/5th share of Goodwill to Mr A for sacrificing share of goodwill. 

{ basically before admission A and B will share the firm goodwill. but after C's admission goodwill is to be shared by A, B and C. so without putting afforts C alos enjoying the benefit of Goodwill. that means on acquisition of his share C has to pay his share of goodwill to the old partners in their sacrificing ratio}

in the above example C has to pay 20,000 to Mr. A. (1/5th of 1,00,000)