How to calculate firm goodwill when only capital and goodwill premium is given of new partner?
Answers
When a new partner enters in partnership firm, the old partner sacrifices his share for him, so it is the duty of new partner to give goodwill in cash or in any other way to old partner . There are following method with this new partner give his share of goodwill to old partners.
1st method
Private distribution of goodwillUnder this method, new partner gives his share of goodwill to old partners personally .So there is no need to record it to the books of firm. No journal entry will pass.
2nd method
Goodwill is given in cash form by new partnerUnder this method, old partner bring his share of goodwill in cash form in the firm and it is taken by old partner in their sacrifice ratio. For this following journal entry pass in the books of firmCash / Bank Account Debit xxxxxxxxxTo Goodwill / Premium Account xxxxxxxxxxGoodwill account debit xxxxxxxx ( share of new partner’s goodwill )To old partner’s capital account xxxxxxx ( divide in sacrifice ratio )
3rd method
when new partner bring goodwill in cash in business and taken by old partner and then withdraw by old partnerAbove two entries will pass as same as in second method but third new entry will passOld partner’s capital account Debit xxxxxxxxxxxTo cash / bank account xxxxxxxx
4th method
when new partner do not bring goodwill in cash formIf new partner do not bring goodwill in cash in firm , then following entry will pass for the adjustment of goodwill .New partner’s capital account debit xxxxxxxx (share of goodwill )To old partner’s capital account xxxxxxxxx (division in sacrifice ratio)
5th method
If partial in cash form of goodwillPart of cash goodwillCash account dr. xxxxxxTo goodwill / premium account xxxxxxxxGoodwill account debit ( cash goodwill) xxxxxxxxxNew partner account debit ( not in cash goodwill ) xxxxTo old partner capital account in sacrifice ratio xxxxxxx
6th method
If goodwill already exist in balance sheet of old partner , then it must be transfer to old partner’s capital account in old ratio . Other method is same above from1 to5 method.Entry passed for transferring of old goodwillOld partner’s capital account debit xxxxxxxTo goodwill xxxxxxx
7th method
If new partner brings other asset as goodwill of his share of goodwill. Then following entry will passAsset account debit xxxxxxTo goodwill account xxxxxxxxGoodwill account debit xxxxxxxxxTo old partner’s capital account in sacrifice ratio xxxxxxxxxx