In the case of admission on more than book,value the goodwill or bonus is to be given to??
Answers
As per the AS 10, we shall record Goodwill in the books only when some consideration in money or money’s worth has been paid for it. It also says that in case of admission of partner, retirement or death of a partner, goodwill should not be raised in the books of the firm. Let us take a look.
Browse more Topics under Treatment Of Goodwill
Concept of Goodwill
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Accounting Treatment of Goodwill in case of Admission of Partner
The incoming partner brings in some amount as his share of Goodwill or Premium to compensate the existing partners for the loss of their share in the future profits of the firm. Thus, at the time of admission of a partner, there are following two ways to treat goodwill.
1] Premium Method
Under this method, when the incoming partner brings his share of goodwill in cash, the existing partners share it in the sacrificing ratio. However, when the amount of goodwill is paid privately by the new partner to old partners privately in cash, no entry is passed in the books of the firm.
A. Goodwill does not appear in the books:
Date Particulars Amount (Dr.) Amount (Cr.)
1. The new partner brings goodwill in cash Cash A/c Dr.
To Goodwill A/c Cr.
(Being share of goodwill of new partner brought in cash)
2. Old partners distribute Goodwill Goodwill A/c Dr.
To Old Partners Capital A/c (Individually) Cr.
(Being goodwill distributed among the old partners in their sacrificing ratio)
⭐⭐answer is : to the new partner ...as his investment is bigger than his capital ⭐⭐