BCOM 1st Year Partnership Account Long Question Answer Notes

Q.4. What do you understand by term goodwill? Discuss the different methods of its valuation.

Ans. Goodwill: When a new partner is admitted into partnership, he gets his share of profits from old partners. For this the partner has to compensate the old partner for the share they surrender to the new partner. The amount of compensation given by the new partner is known as goodwill.

Accounting Treatment of Goodwill

1. When the Amount of Goodwill Paid Privately: When the amount of goodwill is paid to the old partner privately and directly or outside the business by the new partner ‘No journal entry made because amount of goodwill is not paid through a firm.

2. When New Partner Brings his Share of Goodwill or Premium in Cash