where is goodwill retained amount recorded?
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The goodwill amount brought in by the newcomer is not shown in the books of account. Many occasions are there where the amount of goodwill is not brought into the firm but the old partners are paid by the new partners as if it is an outside transaction. This system is not scientific as it avoids income tax and leads to black money. This is not a healthy practice in the business. Since the matter is settled out of the firm privately, no journal entry is necessary.
(2) When the Goodwill is Received in Cash and Retained in the Business:
The amount of goodwill brought in by the incoming partner is taken to the books of account. The existing partners apportion the goodwill among themselves in the sacrificing ratio. The amount is retained in the business as additional working capital.
ADVERTISEMENTS:
The following entries are made:

If the sacrificing ratio is not known, then the amount of goodwill is credited to the existing partners’ Capital Accounts in the old profit sharing ratio. This is because the ratio of their sacrificing coincides with their old profit sharing ratio.
(3) When the Amount of Goodwill is received by the Firm and is withdrawn by the Old Partners:
The amount of goodwill brought in by the incoming partner is credited to the existing partners with their respective share of goodwill and they may withdraw the amount fully or partially.
ADVERTISEMENTS:
In the previous method, the cash is retained in the business as an additional capital, but under this method, the existing partners withdraw either full or partially the amount of goodwill.
Thus, in addition to the above entries in (2) above, the following entry is needed to record the withdrawals of the amount by the existing partners:

(4) When the Goodwill is Raised at its Full Value:
Very often the incoming partner is not in a position to bring anything in cash for goodwill. Under this circumstance it becomes desirable to bring the goodwill at its full value by debiting the goodwill and crediting the old partners’ Capital Account in their old profit sharing ratio.
This allows full credit to all the old partners for their interest in the overall goodwill. Goodwill Account then appears as an asset in the firm’s Balance Sheet. It is not necessary that it should be allowed to stand there for an indefinite period.
After crediting the goodwill to the old partners, their capital accounts increase and thus the firm’s status as regards the earning capacity descends from super earning to the normal earning one At this stage any share in partnership firm that is assigned to the incoming partner refers to the normal profit as against super profit.
Therefore, the newcomer cannot be asked for any extra payment because none gains or sacrifices super profit. When the purpose is fulfilled the goodwill is written back to partners of newly constituted firm in the new profit sharing ratio.
(2) When the Goodwill is Received in Cash and Retained in the Business:
The amount of goodwill brought in by the incoming partner is taken to the books of account. The existing partners apportion the goodwill among themselves in the sacrificing ratio. The amount is retained in the business as additional working capital.
ADVERTISEMENTS:
The following entries are made:

If the sacrificing ratio is not known, then the amount of goodwill is credited to the existing partners’ Capital Accounts in the old profit sharing ratio. This is because the ratio of their sacrificing coincides with their old profit sharing ratio.
(3) When the Amount of Goodwill is received by the Firm and is withdrawn by the Old Partners:
The amount of goodwill brought in by the incoming partner is credited to the existing partners with their respective share of goodwill and they may withdraw the amount fully or partially.
ADVERTISEMENTS:
In the previous method, the cash is retained in the business as an additional capital, but under this method, the existing partners withdraw either full or partially the amount of goodwill.
Thus, in addition to the above entries in (2) above, the following entry is needed to record the withdrawals of the amount by the existing partners:

(4) When the Goodwill is Raised at its Full Value:
Very often the incoming partner is not in a position to bring anything in cash for goodwill. Under this circumstance it becomes desirable to bring the goodwill at its full value by debiting the goodwill and crediting the old partners’ Capital Account in their old profit sharing ratio.
This allows full credit to all the old partners for their interest in the overall goodwill. Goodwill Account then appears as an asset in the firm’s Balance Sheet. It is not necessary that it should be allowed to stand there for an indefinite period.
After crediting the goodwill to the old partners, their capital accounts increase and thus the firm’s status as regards the earning capacity descends from super earning to the normal earning one At this stage any share in partnership firm that is assigned to the incoming partner refers to the normal profit as against super profit.
Therefore, the newcomer cannot be asked for any extra payment because none gains or sacrifices super profit. When the purpose is fulfilled the goodwill is written back to partners of newly constituted firm in the new profit sharing ratio.
amairah:
MEC 2nd year
and you?
great
no
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8
the goodwill retained amount is recorded by the newcomer is which is not shown in books
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