Accounting treatment of goodwill at the time of admission

When a new partner enters in partnership firm, the old partner sacrifices his share for him , so it is the duty of new partner to give goodwill in cash or in any other way to old partner . There are following method with this new partner give his share of goodwill to old partners .

1st method

Private distribution of goodwill

Under this method , new partner gives his share of goodwill to old partners personally .So there is no need to record it to the books of firm . No journal entry will pass .

2nd method

Goodwill is given in cash form by new partner

Under this method , old partner bring his share of goodwill in cash form in the firm and it is taken by old partner in their sacrifice ratio . For this following journal entry pass in the books of firm
Cash / Bank Account Debit xxxxxxxxx

To Goodwill / Premium Account xxxxxxxxxx

Goodwill account debit xxxxxxxx ( share of new partner’s goodwill )

To old partner’s capital account xxxxxxx ( divide in sacrifice ratio )

3rd method

when new partner bring goodwill in cash in business and taken by old partner and then withdraw by old partner

Above two entries will pass as same as in second method but third new entry will pass

Old partner’s capital account Debit xxxxxxxxxxx

To cash / bank account xxxxxxxx

4th method

when new partner do not bring goodwill in cash form

If new partner do not bring goodwill in cash in firm , then following entry will pass for the adjustment of goodwill .

New partner’s capital account debit xxxxxxxx (share of goodwill )
To old partner’s capital account xxxxxxxxx (division in sacrifice ratio)

5th method

If partial in cash form of goodwill

Part of cash goodwill
Cash account dr. xxxxxx
To goodwill / premium account xxxxxxxx

Goodwill account debit ( cash goodwill) xxxxxxxxx
New partner account debit ( not in cash goodwill ) xxxx
To old partner capital account in sacrifice ratio xxxxxxx

6th method

If goodwill already exits in balance sheet of old partner , then it must be transfer to old partner’s capital account in old ratio . Other method is same above from 1 to 5 method .

Entry passed for transferring of old goodwill

Old partner’s capital account debit xxxxxxx
To goodwill xxxxxxx

7th method

If new partner brings other asset as goodwill of his share of goodwill . Then following entry will pass

Asset account debit xxxxxx
To goodwill account xxxxxxxx

Goodwill account debit xxxxxxxxx
To old partner’s capital account in sacrifice ratio xxxxxxxxxx

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Accounting Education: Accounting treatment of goodwill at the time of admission
Accounting treatment of goodwill at the time of admission
Accounting Education
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