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Journal entry

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Q/ When shares are issued to promoters the following entry is passed

Goodwill A/C DR

to equity share capital A/C

Here my question is that why goodwill a/c is debited

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Originally posted by : manish
	Q/ When shares are issued to promoters the following entry is passed Goodwill A/C DR to equity share capital A/C Here my question is that why goodwill a/c is debited

Goodwill account is debited on the assumption that promoter’s function has resulted in

forming the company into profitable unit.

1 Like

CA ADITYA SHARMA (CA IN PRACTICE ) (16719 Points)
Replied 05 September 2011

agree with above

CA Sachin Rastogi (Audit/IFRS Manager) (338 Points)
Replied 06 September 2011

Under International Accounting Standards - IFRS 2 - Such a case will be treated as share based payments to the promoters in lieu of their services to the company. The debit should go to the income statement by way of creation of share based payment reserve.

Dhanabal Ramasamy (CHARTERED ACCOUNTANT) (105 Points)
Replied 06 September 2011

Hai..

According to AS 26 Intangible Assets goodwill should not be entered into books unless it raised during the merger and amalgmation and payment is made against it. That is purchased goodwill only recorded in books. so the above entry is wrong. The company is issuing shares not for consideration of cash. So it has to debit the reserves.