Goodwill appearing in the balance sheet at the time of admission of
new partners is written off in -------------------------- ratio.
Answers
ANSWER :
★ Old Profit Sharing Ratio of the Old Partners
- ➺ Goodwill appearing in the balance sheet at the time of admission of new partners is written off in Old Profit Sharing ratio.
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EXPLANATION :
We know that, valuation of Goodwill is an important part of admission of new partners in a partnership firm. Accounting treatment for valuation of goodwill at the time of admission can be discussed under two heads : (i) When the goodwill account appears in the books and (ii) When the goodwill account does not appear in the books.
At the time of admission of new partner(s), if Goodwill Account appears in the books of accounts, it means that an entry debiting Goodwill Account was passed earlier and that account appears in the ledger and the balance sheet of the firm prepared on the date of the the new partner(s). In such a situation existing Goodwill account is to be written off before recording the entries related to the admission of the new partner(s).
- ✎ The amount of goodwill appears in the balance sheet is written off in the Old Profit sharing Ratio of the old partners.
In this case, the Old Partners' Capital/Current Accounts are debited and the Goodwill Account is credited. The amount of goodwill is written off in respect of the old partners Old Profit Sharing Ratio.
Answer:
old partner capital account. Dr. xx
To Goodwill account. xx
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