Read without ads and support Scribd by becoming a Scribd Premium Reader.
See Premium Plans
 
14, Maitrinagar Society, B/h. Pragatinagar Bus-stop, Naranpura,
Ahmedabad. 380 013. Ph.No. 079- 27473392
ACCOUNT
CH : 5 Admission of a New Partner 
Goodwill & its accounting effects :-
Two methods are used for accounting treatment of goodwill :(A)Premium method(B)Revaluation method
(A)Premium Method :-1)When goodwill is brought in cash & the same is retained into the business.
Cash / Bank a/cDr.To old Partners capita a/cs(Being share of new partner in total value of goodwill is distributed between old partners asper their sacrifice ratio.)
2)When goodwill is brought in cash & it is withdrawn by the old partners.
Cash / Bank a/cDr.To old Partners’ capital accountsOld Partners’ capital a/csDr.To cash / bank a/c
Note :- When new partner brings his share of Goodwill in cash, goodwill will not appear inthe New Balance Sheet as an Asset.(B)Revaluation Method :-
When new partner brings his own share of goodwill in cash, premium method is usedbut when new partner does not bring his own share of goodwill in cash, revaluation methodis used to incorporate accounting treatment of goodwill.
1)When Goodwill a/c is not there in the books of partnership firm.
(a)Goodwill a/cDr. (Total value of goodwill)To old Partners’ capital a/cs(Being goodwill a/c is raised or created at its full value by old partners in their old profitsharing ratio & goodwill will be shown as an asset in new balance sheet)(b)For writing off goodwill Partners’ capital a/csDr.To Goodwill a/c(Being created value of goodwill is fully written off to all partners’ capital a/cs(including new partner) in their new profit sharing ratio & no value of goodwill will bedisclosed in the new balance sheet)
2)When Goodwill Account is there in the books of Partnership firm.(a)New value of goodwill is more than old disclosed value
Goodwill a/cDr. (increased value of goodwill)To old partners’ capital a/cs.
 
BY: VIKAS RAVAL
1
Std: 12
th
Com.
 
(Being due to admission of a new partner, value of goodwill is increased & it iscredited to old partners’ capital a/cs in their old profit-loss ratio. New value of goodwillwill appear in new balance sheet.)
(b) New value of goodwill is less than old disclosed value
Old Partners’ capital a/cs.Dr.To Goodwill a/c (Reduced value of goodwill)(Being due to admission of a new partner, value of goodwill is decreased & it isdebited to old partners’ capital a/cs in their old profit-loss ratio. New value of goodwillwill appear in new balance sheet)
 
(c)Full value of goodwill may be written off after increase or decrease in value of goodwill.
All Partners’ capital a/cs Dr.(including new partner)To Goodwill a/c(Being full value of goodwill is written off in new profit-loss sharing ratio between allthe partners & no value of goodwill will be shown in new balance sheet.)
(d)Recording goodwill without opening goodwill a/c.
(Accounting entry for goodwill is given directly to the partners’ capital accounts.)New Partners’ capital a/cDr.To Old Partners’ capital a/c. (in sacrifice ratio)
(e)Goodwill account appears in the books & the new partner brings his share of goodwill in cash.(i)When goodwill is to be maintained at old value.
⇒
Write off old goodwill to old partners capital accounts in their old profit & lossratio.Old Partners’ capital a/cs Dr.To Goodwill a/c
⇒
New Partner brings his share of goodwill in cash.Cash a/cDr.To Goodwill a/cGoodwill a/cDr.To old partners’ capital a/cs.(in sacrificing ratio.)Goodwill a/cDr.To All Partners capital a/cs. (including new partner)(Being goodwill a/c debited at old value in the books of the firm & credited to allpartners capital a/cs in their new profit sharing ratio.)
(ii)When goodwill is to be maintained at new value
⇒
Cash / bank a/cDr.To New Partner’s capital a/c(Being new partner’s share in goodwill is credited to his/her capital a/c)
⇒
Goodwill a/cDr.To old Partner’s capital a/cs(Being increase in value of goodwill is credited to old partners’ capital a/cs intheir old profit sharing ratio & new value of goodwill will appear in new balancesheet.)OROld Partners’ capital a/cs Dr.To goodwill a/c
 
BY: VIKAS RAVAL
2
Std: 12
th
Com.
 
(Being decease in value of goodwill is debited to old partners’ capital a/cs intheir old profit sharing ratio & new value of goodwill will appear in new balancesheet.)
Accounting Treatment of Reserves & Accumulated profits.
1)Accumulated profits (eg. general reserve, reserve fund, workmen accident compensationfund, P&L a/c credit balance etc.) are credited to old partners’ capital a/cs in their old profitsharing ratio.2)Accumulated loss (eg. P&L a/c debit balance) is debited to old partners’ capital a/cs in their old profit sharing ratio.
Following accounts are to be prepared in admission of a partner :-
1)Revaluation account (P&L Adjustment a/c)2)Partners’ capital accounts3)Cash / Bank a/c4)Balance sheet after admission of a new partner 
From following options, select proper one for following questions :
1)A & B are partners sharing profit & loss in the proportion of 3:2. They have admitted C as apartner on the condition that he will be given
15 
share. What is new profit-loss sharing ratio?(March 2006)
(a) 12:8:5
(b) 8:12:5(c) 12:5:8(d) 8:5:12
351514155525
 A B
−− = =
3412552524855251555525
 A BC 
= × == × == × =
New ratio = 12:8:52)Bharati & Rachna are partners sharing profit & loss in equal proportion. They admitted Stutigiving her 
14
th share in the profit of partnership firm. Determine new profit & loss sharingratio for partners.
(a) 3:3:2
(b) 1:1:1(c) 2:3:3(d) 3:3:1
14131444
−− = =
 133248133248122428
 B RS 
= × == × == × =
New ratio = 3:3:2
BY: VIKAS RAVAL
3
Std: 12
th
Com.
Search
Search History:
Searching...
Result 00 of 00
00 results for result for
  • p.
    • Notes
    Load more