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Partnership Accounts - Goodwill

Partnership Accounts - Goodwill. Admission and Withdrawal of Partners. Admission of Partners. Share of goodwill - goodwill adjustments Capital introduced by new partner Capital accounts Balance sheet. Goodwill Adjustments. Goodwill Adjustments. The Journal.

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Partnership Accounts - Goodwill

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  1. Partnership Accounts - Goodwill Admission and Withdrawal of Partners

  2. Admission of Partners • Share of goodwill - goodwill adjustments • Capital introduced by new partner • Capital accounts • Balance sheet

  3. Goodwill Adjustments

  4. Goodwill Adjustments The Journal

  5. Capital introduced by new partner The Journal The amount paid may include the amount paid for the share of goodwill.

  6. Example A and B are in partnership sharing profits and losses in the ratio of 2:1. Their capital balances are $6,600 and 8,900 respectively at 31 Dec 2001. C is admitted as a new partner of the partnership on 1 January 2002. Goodwill is valued at $12,000. The profits and losses are now to be shared – A 2 : B 2 : C 1. C paid $3,000 as capital and an additional amount for the share of goodwill. Required: Prepare the capital accounts for all the partners.

  7. Goodwill Adjustments

  8. Journal Entries – Goodwill Adjustments The Journal

  9. Capital introduced by C Total cash introduced = cash introduced as capital + cash for the share of goodwill = $3,000 + $2,400 = $5,400 Dr. Cash 5400 Cr. Capital – C 5400

  10. Journal Entries – Cash Introduced by new partner The Journal

  11. Capital Accounts

  12. Calculation of Goodwill Payment for goodwill = $2,000 Share of goodwill = 1/5 1 Goodwill = Payment for goodwill X ------------------------- Share of goodwill Goodwill 1 = $2000 X ----------- = $2,000 X 5 = $10,000 1/5

  13. The End !

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