when new partner admitted goodwill credited then this account is debited
Answers
Answer:
When a new partner is admitted, goodwill of the business is valued afresh. For this, the goodwill that already appears in the books of accounts is written off and is transferred to the old partner's capitals accounts in their old profit sharing ratio. The old partner's capital accounts are debited with their share of goodwill.
The accounting entry is:
Partner's capital a/c.... Dr.
To Goodwill a/c
Answer:
Premium for goodwill is the additional amount brought in by the incoming partner to compensate for the loss in share of the super profits of the old partners. This extra amount is credited to the premium for goodwill account and is distributed among the old partners in their sacrificing ratio.
The accounting entry is:
1. Cash a/c.... Dr.
To Premium for Goodwill a/c
(Being premium for goodwill brought in by the new partner)
Explanation:
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