If goodwill is raised at the time of change in PSR it must be written off among the Partners. True/ False
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Answers
Answer:
Goodwill is recorded in books only when some consideration in money is paid for it. Therefore, goodwill is recorded in the books only when it is purchased. In case of reconstitution of a firm, goodwill cannot be raised in the books of accounts as a consideration for the same is not paid.
If the goodwill is not bought/ recorded in the books, such goodwill should be adjusted through the capital accounts of partners. The following journal entries are passed in case of retirement of a partner.
WHEN THE GOODWILL IS RAISED WITH FULL VALUE:
Goodwill A/c ( with full value) Dr.
To All partners capital A/c
(including retiring partner in old profit sharing ratio)
After the above entry goodwill will appear in the Balance sheet with full value. As par AS 26 self- generated goodwill cannot be shown in the balance sheet. Hence, the above goodwill be written off by continuing partners in new profit sharing ratio by passing the following entry:
Continuing partners capital A/c ( in new ratio) Dr.
To Goodwill A/c (with full value)
Answer:
Goodwill is recorded in books only when some consideration in money is paid for it. Therefore, goodwill is recorded in the books only when it is purchased. In case of reconstitution of a firm, goodwill cannot be raised in the books of accounts as a consideration for the same is not paid.
If the goodwill is not bought/ recorded in the books, such goodwill should be adjusted through the capital accounts of partners. The following journal entries are passed in case of retirement of a partner.
WHEN THE GOODWILL IS RAISED WITH FULL VALUE:
Goodwill A/c ( with full value) Dr.
To All partners capital A/c
(including retiring partner in old profit sharing ratio)
After the above entry goodwill will appear in the Balance sheet with full value. As par AS 26 self- generated goodwill cannot be shown in the balance sheet. Hence, the above goodwill be written off by continuing partners in new profit sharing ratio by passing the following entry:
Continuing partners capital A/c ( in new ratio) Dr.
To Goodwill A/c (with full value)