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Goodwill treatment

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CHAITRI SUDHAKARBHAI KHAROD

ARTICLE

752 Points Joined March 2014

in case of partnership, at the time of admission of partner, if goodwill is shown in BOA or is revalued , we show it in old ratio but at the time of written off of goodwill, we show it in new ratio.....my question is what is the logic behind this means in certain case old ratio is considered and in certain case new ratio is considered

Replies (2)

yasaswi gomes

My grammar is 💯 good I

7296 Points Joined March 2019

When a new partner joins, he is bringing in goodwill= The combined capital of old partners minus the new capital bought in by third partner. This belongs to the old partners because they allowed him to get partnership and entitled to get rewarded for this. This is why old ratio is used to calculate goodwill because only partners will retain goodwill in their capital accounts proportionate to their old ratio.

Next, when a company does not want to carry forward the goodwill to next year, company will write it off. So, the old goodwill amount which arose when the partner joined will be revalued in the new partnership ratio. Then all of these revalued goodwill amounts will be eliminated from all partners capital accounts.

https://www.accaglobal.com/pk/en/student/exam-support-resources/foundation-level-study-resources/fa2/fa2-technical-articles/accounting-for-partnerships.H T M L