1. Treatment of Goodwill December 9, 2010
Treatment of Goodwill at the time of Admission of Partner
Ex. A and B are partners sharing profits & losses in the ratio of 3 : 2. C is
admitted. New profit sharing ratio of A, B & C is 5:3:2. Sacrifice ratio is 1:1.
Goodwill of the firm = 30,000.
2
C's share of Goodwill = 30,000 = 6,000.
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(A) Goodwill brought in Cash (C) Goodwill is raised
(1) If C brings in cash for Goodwill. Goodwill A/c Dr. (Total) 30000
Cash A/c Dr. 6000 To A’s Capital A/c 18000
To Goodwill A/c 6000 To B’s Capital A/c 12000
(C’s share in Goodwill) (In Old Ratio)
(2) Goodwill A/c Dr. 6000
To A’s Capital A/c 3000
To B’s Capital A/c 3000
(In Sacrific Ratio 1 : 1)
(B) If Goodwill amount is withdrawn (D) If Goodwill is written off
A’s Capital A/c Dr. A’s Capital A/c Dr. 15000
B’s Capital A/c Dr. B’s Capital A/c Dr. 9000
To Cash A/c C’s Capital A/c Dr. 6000
(Actual Amount withdrawn) To Goodwill A/c 30000
(In New Ratio)
Goodwill treatment in retirement :
Method I : Goodwill of the firm is raised
It means entire firms Goodwill is recorded as an Asset.
Method II : Goodwill of the retiring partner is raised:
It means only retiring partners share in Goodwill is recorded as an Asset.
Method III : Goodwill adjustment without opening goodwill A/c : It means
retiring partner’s share of goodwill is adjusted directly to the capital A/c of the
gaining partners.
eg. A,B & C are partners & C retires
Old Profit Sharing Ratio 3 : 2 : 1 (A, B & C)
New Profit Sharing Ratio 3 : 2 (A & B)
Goodwill of firm = 30,000
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2. Treatment of Goodwill December 9, 2010
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C's share of Goodwill = 30,000 = 5,000.
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Method I Method II
Total Goodwill of firm is raised C’s share of Goodwill is raised
Goodwill A/c Dr. 30,000 Goodwill A/c Dr. 5,000
To A’s Capital A/c 15,000 To C’s Capital A/c 5,000
To B’s Capital A/c 10,000
To C’s Capital A/c 5,000
(O R. i.e. 3:2:1)
If Goodwill is written off. If Goodwill is written off
A’s Capital A/c Dr. 18,000 A’s Capital A/c Dr. 3,000
B’s Capital A/c Dr. 12,000 B’s Capital A/c Dr. 2,000
To Goodwill A/c 30,000 To Goodwill A/c 5,000
(N R 3:2) (In Gain /Agreed Ratio)
Method III : It means Retiring partners share of Goodwill is adjusted directly
through the capital a/c’s of the Gaining Partners in their Gain Ratio.
If Goodwill adjustment is to be done without opening Goodwill A/c directly in
Partners Capitals
A’s Capital A/c Dr. 3000 (Remaining Partners)
B’s Capital A/c Dr. 2000
}
To C’s Capital A/c (Retiring Partner)
(C’s share of Goodwill) 5000
(In Gain Ratio)
NR-means New Ratio .
OR-means Old Ratio .
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