Question

Why is goodwill not recorded in the books at the time of reconstitution of partnership

Answer 1

Answer:

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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

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