The new partner must pay his share of goodwill in cash only. (State True or False)
Answers
NEW PARTNER PURCHASE GOODWILL THROUGH CASH.
Answer:
False
Explanation:
The new partner must pay his share of goodwill in cash only. - False
It is not necessary for the partner to pay goodwill in cash only.
According to the revaluation method the new partner chooses not to cash his share of goodwill. Thus, by debiting Goodwill account and crediting the capital accounts of ancient partners in the ancient profit-sharing ratio, then there is a need to increase the goodwill account in the books.
Whereas, under the premium method, the current partners share it in the sacrificing proportion when the incoming partner gives his share of goodwill in money. However, when the sum of goodwill is paid in money by the new partner privately to old partners, no entry will be carried in the company's books.