Explain how will you deal with goodwill when new partner is not in a p

1.	Explain how will you deal with goodwill when new partner is not in a position to bring his share of goodwill in cash.
Answer» The incoming partner who acquires his share in the profits of the firm from the existing partners brings in some additional amount to compensate them for loss of their share in super profits. It is termed as his share of goodwill (also called premium). Alternatively he may agree that goodwill account be raised in the books of the firm by giving the necessary credit to the old partners. Thus, when a new partner is admitted, goodwill can be treated in two ways: 1. By Premium Method, and 2. By Revaluation Method. Premium Method: This method is followed when the new partner pays his share of goodwill in cash. The amount of premium brought in by the new partner is shared by the existing partners in their ratio of sacrifice.

Explain how will you deal with goodwill when new partner is not in a position to bring his share of goodwill in cash.

Answer»

The incoming partner who acquires his share in the profits of the firm from the existing partners brings in some additional amount to compensate them for loss of their share in super profits. It is termed as his share of goodwill (also called premium). Alternatively he may agree that goodwill account be raised in the books of the firm by giving the necessary credit to the old partners.

Thus, when a new partner is admitted, goodwill can be treated in two ways:

1. By Premium Method, and

2. By Revaluation Method.

Premium Method: This method is followed when the new partner pays his share of goodwill in cash. The amount of premium brought in by the new partner is shared by the existing partners in their ratio of sacrifice.

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