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Goodwill treatment

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CHAITRI SUDHAKARBHAI KHAROD

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533 Points Posted on 21 June 2020

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

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Quick Summary

When a new partner joins a partnership, goodwill is typically distributed among the existing partners using their old ratio. This reflects the reward for allowing the new partner access to the business. However, if the partnership decides to write off existing goodwill, it's revalued and then written off across all partners, including the new one, using the new partnership ratio.

yasaswi gomes

My grammar is 💯 good I

5110 Points Posted on 21 June 2020

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