Accounting Entries for Goodwill in Partnership

We have researched for latest 2013 accounting entries for goodwill in partnership at the time of admission of a new partner in the partnership firm. As per Accounting standard 10 of  Indian GAAP, we will treat the goodwill in the book of firm if a new partner will bring the goodwill in cash or cash's worth. Otherwise, there will not be any treatment.
Now on this basis, we are passing accounting entries for goodwill in partnership.

1. When A New Partner Gives the Goodwill in Cash Privately

If a new partner came and got his profit share from old partner and gave the goodwill in the pocket of old partner privately without any information or proof to public. Its accounting entry will not be in the books of account.

2. When A New Partner Gives Goodwill in Cash and Mentioned to Public

A new partner came. Goodwill gave to old partner in cash and he mentioned this in public. Same goodwill will be kept in the business as Asset . Following entries will be passed.

1st Entry

Cash / Bank Account Debit

Goodwill / Premium Account Credit

2nd Entry

Goodwill / Premium Account Debit

Old Partner's Capital Account Credit

( In sacrifice ratio, old partner will divide the goodwill)

3. When A New Partner Gives Goodwill in Cash and Old Partners Withdraw

A new partner came. Goodwill gave to old partner in cash and he mentioned this in public. Same goodwill will be kept in the business as Asset . But after this, same day or other day, old partner withdraw the goodwill. Following entries will be passed.

1st Entry

Cash / Bank Account Debit

Goodwill / Premium Account Credit

2nd Entry 

Goodwill / Premium Account Debit

Old Partner's Capital Account Credit

( In sacrifice ratio, old partner will divide the goodwill)

3rd Entry 

Old Partner's Capital Account Debit

Cash/ Bank

( In sacrifice ratio, old partner will withdraw the goodwill amount)

4. When A New Partner will not Pay Goodwill in Cash But Adjustment through His Capital Account 

At that time, we will pass following journal entry 

New Partner's Capital Account Debit 

Old Partner's Capital Account Credit 

( In sacrifice ratio, old partner will divide the goodwill proportion through new partner's capital adjustment. New partner's capital will decrease and new partner's capital will increase. )

5. When A New Partner will not Pay  whole in Cash Goodwill 

If a new partner has decided that he will some proportion of goodwill in cash and other in his capital adjustment. At that time, following entry will be pass. 

1st Entry

Cash / Bank Account Debit

Goodwill / Premium Account Credit ( suppose, it is the 60% of total payable goodwill by a new partner)

2nd Entry

Goodwill / Premium Account Debit ( 60% of total goodwill)

New Partner's Capital Account Debit (40% of total goodwill)

Old Partner's Capital Account Credit ( 100%)

( In sacrifice ratio, old partner will divide the goodwill)

6. When A New Partner will Give Goodwill in Kind of Any Asset 

when a new partner has decided to give the goodwill to old partner in the form of any asset. At that time, following entry will be passed. 

1st Entry 

Assets which is Given by New Partner Account Debit 

New Partner's Capital Account Credit 

Goodwill/ Premium Account Credit ( Difference between asset and capital)

2nd Entry 

Goodwill/Premium Account Debit 

Old Partner's Capital Account Credit 

( In sacrifice ratio, old partner will divide the goodwill)

7. When there is Goodwill in Balance Sheet or Books 

We do the action for  written off all these goodwill by transferring in old partners' capital account  and then all other above treatment will do. 

For Written off the goodwill in old balance sheet 

Old Partners' Capital Account Debit 

Goodwill/ Premium Account Credit 

( this goodwill will be written off in old sharing ratio between the old partners. )

Learn Accounting Treatment Through Video Tutorial 

See Also 

• Old Accounting Treatment of Goodwill at the Time of Admission of a New Partner
• Methods of Goodwill

Category: Financial Accounting