Goodwill is reputation but why is goodwill increased if partner brings goodwill in cash?
Suppose incoming partner "A" brings goodwill in cash rs. 50000 and capital rs 100000 then partnership says rs50000 as goodwill will increase the present goodwill of the firm....but goodwill is reputation then hw can it be increased thru cash?
Goodwill is not increased when a new partner is admitted.
Goodwill is not increased in case of admission of a new partner. The new partner provides his share of firms goodwill as he will gain a share in future share of profits. This compensation by incoming partner is credited to sacrificing partner(s) as sacrificing partners give some share of profits in future.
Remember two points in relation to incoming partner rights as per Partnership Act,1932:-
1-- Brings capital for using the assets of the firm.
2-- Brings share of goodwill to share profits(losses) of the firm.
I am also agree with Faiz Ahmed
"The new partner provides his share of 'firms goodwill' as he will gain a share in future share of profits"
Goodwill is what a firm acquired during its life time. only an existing firm has goodwill. when a new partner entered in to an existing firm he is bound to pay his share of goodwill and in normal treatment it will shared by old partners in their sacrifising ratio. and it should be noted that goodwill appears only when there is a change in the profit sharing ratio between partners.
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