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Page 1 ACCOUNTANCY – XII TREATMENT OF GOODWILL CASE1: When old partner retires from the firm Step 1: find N.R. Step 2: find Gaining ratio = new ratio – old ratio Step 3: find retiring partners share in the firms goodwill (firms goodwill X retiring partner share) * if firms goodwill is not given than find the firms goodwill Step 4: pass journal entries Compulsory Journal entries Particulars L.f. Amt DR. Amt. Cr. For goodwill In G.R. Remaining partner’s capital A/c dr. To retiring partners A/c (in gaining ratio and only the share of the retiring partner ) Optional entries Old goodwill appears in the balance sheet/Old goodwill is to be written off In O.R Old Partners capital A/c(A’s Capital A/c) Dr. Old Partners capital A/c(B’s Capital A/c) Dr. Old Partners capital A/c(C’s Capital A/c) Dr. To Goodwill A/c Profits of the new firm is given it will distributed In new ratio(after the admission of new partner) In N.R P & L Appropriation A/c Dr. To New Partners capital A/c(A’s Capital A/c) To New Partners capital A/c(B’s Capital A/c) If losses of the new firm is given it will distributed In new ratio(after the admission of new partner) In N.R New Partners capital A/c(A’s Capital A/c) Dr. New Partners capital A/c(B’s Capital A/c) Dr. To P & L A/c Page 2 ACCOUNTANCY – XII TREATMENT OF GOODWILL CASE1: When old partner retires from the firm Step 1: find N.R. Step 2: find Gaining ratio = new ratio – old ratio Step 3: find retiring partners share in the firms goodwill (firms goodwill X retiring partner share) * if firms goodwill is not given than find the firms goodwill Step 4: pass journal entries Compulsory Journal entries Particulars L.f. Amt DR. Amt. Cr. For goodwill In G.R. Remaining partner’s capital A/c dr. To retiring partners A/c (in gaining ratio and only the share of the retiring partner ) Optional entries Old goodwill appears in the balance sheet/Old goodwill is to be written off In O.R Old Partners capital A/c(A’s Capital A/c) Dr. Old Partners capital A/c(B’s Capital A/c) Dr. Old Partners capital A/c(C’s Capital A/c) Dr. To Goodwill A/c Profits of the new firm is given it will distributed In new ratio(after the admission of new partner) In N.R P & L Appropriation A/c Dr. To New Partners capital A/c(A’s Capital A/c) To New Partners capital A/c(B’s Capital A/c) If losses of the new firm is given it will distributed In new ratio(after the admission of new partner) In N.R New Partners capital A/c(A’s Capital A/c) Dr. New Partners capital A/c(B’s Capital A/c) Dr. To P & L A/c ACCOUNTANCY – XII Case 2. Hidden Goodwill P, Q and R are partners in a firm sharing profits in the ratio of 3:2:1. R retires, and the balance in his capital account after making necessary adjustments on account of reserves, revolution of assets and liabilities works-out to be Rs. 60,000, P and Q agreed to pay him Rs. 75,000 in full settlement of his claim. It implies that Rs. 15,000 is R’s share of goodwill of the firm. Particulars L.f. Amt DR. Amt. Cr. P’s Capital A/c Q’s Capital A/c To R’s Capital A/c 9000 6000 15000 It implies that Rs. 15,000 is R’s share of goodwill of the firm Page 3 ACCOUNTANCY – XII TREATMENT OF GOODWILL CASE1: When old partner retires from the firm Step 1: find N.R. Step 2: find Gaining ratio = new ratio – old ratio Step 3: find retiring partners share in the firms goodwill (firms goodwill X retiring partner share) * if firms goodwill is not given than find the firms goodwill Step 4: pass journal entries Compulsory Journal entries Particulars L.f. Amt DR. Amt. Cr. For goodwill In G.R. Remaining partner’s capital A/c dr. To retiring partners A/c (in gaining ratio and only the share of the retiring partner ) Optional entries Old goodwill appears in the balance sheet/Old goodwill is to be written off In O.R Old Partners capital A/c(A’s Capital A/c) Dr. Old Partners capital A/c(B’s Capital A/c) Dr. Old Partners capital A/c(C’s Capital A/c) Dr. To Goodwill A/c Profits of the new firm is given it will distributed In new ratio(after the admission of new partner) In N.R P & L Appropriation A/c Dr. To New Partners capital A/c(A’s Capital A/c) To New Partners capital A/c(B’s Capital A/c) If losses of the new firm is given it will distributed In new ratio(after the admission of new partner) In N.R New Partners capital A/c(A’s Capital A/c) Dr. New Partners capital A/c(B’s Capital A/c) Dr. To P & L A/c ACCOUNTANCY – XII Case 2. Hidden Goodwill P, Q and R are partners in a firm sharing profits in the ratio of 3:2:1. R retires, and the balance in his capital account after making necessary adjustments on account of reserves, revolution of assets and liabilities works-out to be Rs. 60,000, P and Q agreed to pay him Rs. 75,000 in full settlement of his claim. It implies that Rs. 15,000 is R’s share of goodwill of the firm. Particulars L.f. Amt DR. Amt. Cr. P’s Capital A/c Q’s Capital A/c To R’s Capital A/c 9000 6000 15000 It implies that Rs. 15,000 is R’s share of goodwill of the firm ACCOUNTANCY – XII CASE3 : When old partner retires from the firm and a new partner starts gaining Step 1: find N.R. Step 2: find Gaining ratio = new ratio – old ratio Step 3: find retiring partners share in the firms goodwill (firms goodwill X retiring partner share) Step 4: multiply the sacrificer share with the firms goodwill (firms goodwill X sacrificer share {negative wala}) * if firms goodwill is not given than find the firms goodwill Step 4: pass journal entries Particulars L.f. Amt DR. Amt. Cr. For goodwill In G.R. Remaining partners capital A/c dr. Gainer’s a/c dr. To Sacrificer’s capital a/c To Retiring partners A/c (in gaining ratio and only the share of the retiring partner ) Page 4 ACCOUNTANCY – XII TREATMENT OF GOODWILL CASE1: When old partner retires from the firm Step 1: find N.R. Step 2: find Gaining ratio = new ratio – old ratio Step 3: find retiring partners share in the firms goodwill (firms goodwill X retiring partner share) * if firms goodwill is not given than find the firms goodwill Step 4: pass journal entries Compulsory Journal entries Particulars L.f. Amt DR. Amt. Cr. For goodwill In G.R. Remaining partner’s capital A/c dr. To retiring partners A/c (in gaining ratio and only the share of the retiring partner ) Optional entries Old goodwill appears in the balance sheet/Old goodwill is to be written off In O.R Old Partners capital A/c(A’s Capital A/c) Dr. Old Partners capital A/c(B’s Capital A/c) Dr. Old Partners capital A/c(C’s Capital A/c) Dr. To Goodwill A/c Profits of the new firm is given it will distributed In new ratio(after the admission of new partner) In N.R P & L Appropriation A/c Dr. To New Partners capital A/c(A’s Capital A/c) To New Partners capital A/c(B’s Capital A/c) If losses of the new firm is given it will distributed In new ratio(after the admission of new partner) In N.R New Partners capital A/c(A’s Capital A/c) Dr. New Partners capital A/c(B’s Capital A/c) Dr. To P & L A/c ACCOUNTANCY – XII Case 2. Hidden Goodwill P, Q and R are partners in a firm sharing profits in the ratio of 3:2:1. R retires, and the balance in his capital account after making necessary adjustments on account of reserves, revolution of assets and liabilities works-out to be Rs. 60,000, P and Q agreed to pay him Rs. 75,000 in full settlement of his claim. It implies that Rs. 15,000 is R’s share of goodwill of the firm. Particulars L.f. Amt DR. Amt. Cr. P’s Capital A/c Q’s Capital A/c To R’s Capital A/c 9000 6000 15000 It implies that Rs. 15,000 is R’s share of goodwill of the firm ACCOUNTANCY – XII CASE3 : When old partner retires from the firm and a new partner starts gaining Step 1: find N.R. Step 2: find Gaining ratio = new ratio – old ratio Step 3: find retiring partners share in the firms goodwill (firms goodwill X retiring partner share) Step 4: multiply the sacrificer share with the firms goodwill (firms goodwill X sacrificer share {negative wala}) * if firms goodwill is not given than find the firms goodwill Step 4: pass journal entries Particulars L.f. Amt DR. Amt. Cr. For goodwill In G.R. Remaining partners capital A/c dr. Gainer’s a/c dr. To Sacrificer’s capital a/c To Retiring partners A/c (in gaining ratio and only the share of the retiring partner ) ACCOUNTANCY – XII Disposal of Amount Due to Retiring Partner Case 1. No info. When retiring partner’s whole amount is treated as loan Retiring Partner’s Capital A/c To Retiring Partner’s Loan A/c Case 2. When retiring partner is paid cash in full. Retiring Partner’s Capital A/c To Cash/Bank A/c Case 3. When retiring partner is partly paid in cash and the remaining amount treated as loan. Retiring Partner’s Capital A/c Dr. (Total Amount due) To Cash/Bank A/c (Amount Paid) To Retiring Partner’s Loan A/c (Amount of Loan) ? The balance of the retiring partner’s loan account is shown on the liabilities side of the Balance Sheet. ? The amount paid to the retiring partner’s will be deducted from the balance of bank in the balance sheet and arrange a bank o.d if required (if balance comes in negative) Some special entries Transaction Particulars L.f. Amt DR. Amt. Cr. Assets are sold off at a loss (asset of Rs.12k sold at Rs.10k ) Revaluation a/c (loss) To assets a/c 2 k 2k Bank a/c To assets 10k 10k Assets are sold off at a profit (asset of Rs.10k sold at Rs.12k ) Assets a/c To revaluation 2k 2k Bank a/c To assets 12k 12k Assets are taken over by a partner at a loss (asset of Rs.12k taken by a partner Rs.10k ) Revaluation a/c (loss) To assets a/c 2 k 2k Partner’s Capital A/c To Assets a/c 10k 10k Assets are taken over by a partner at a gain (asset of Rs.10 k taken by a partner Rs.12k ) Assets a/c To revaluation 2k 2k Partner’s Capital A/c To Assets a/c 12k 12k Assets are sold at par (10k = 10k) Bank a/c To assets (money received from sale of assets is added to bank a/c) 10k 10k Assets are taken over by a partner at par (10k = 10k) Partner’s Capital A/c To assets (partner’s capital a/c will be debited) 10k 10k If any Asset is not taken by the new firm Assets a/c To Old Partners capital A/c (will be distributed in the partners in old ratio) Liabilities are paid off Liabilities a/c dr. To bank a/c Liabilities are paid off at a discount (creditors of 10k settled at Rs.9k ) Liabilities a/c dr. To revaluation a/c 1k 1k Liabilities a/c dr. To bank a/c 9k 9k Liabilities are paid off more then the book value (creditors of 10k settled at Rs.11k ) Revaluation a/c dr. To Liabilities a/c 1k 1k Liabilities a/c dr. To bank a/c 11k 11k Page 5 ACCOUNTANCY – XII TREATMENT OF GOODWILL CASE1: When old partner retires from the firm Step 1: find N.R. Step 2: find Gaining ratio = new ratio – old ratio Step 3: find retiring partners share in the firms goodwill (firms goodwill X retiring partner share) * if firms goodwill is not given than find the firms goodwill Step 4: pass journal entries Compulsory Journal entries Particulars L.f. Amt DR. Amt. Cr. For goodwill In G.R. Remaining partner’s capital A/c dr. To retiring partners A/c (in gaining ratio and only the share of the retiring partner ) Optional entries Old goodwill appears in the balance sheet/Old goodwill is to be written off In O.R Old Partners capital A/c(A’s Capital A/c) Dr. Old Partners capital A/c(B’s Capital A/c) Dr. Old Partners capital A/c(C’s Capital A/c) Dr. To Goodwill A/c Profits of the new firm is given it will distributed In new ratio(after the admission of new partner) In N.R P & L Appropriation A/c Dr. To New Partners capital A/c(A’s Capital A/c) To New Partners capital A/c(B’s Capital A/c) If losses of the new firm is given it will distributed In new ratio(after the admission of new partner) In N.R New Partners capital A/c(A’s Capital A/c) Dr. New Partners capital A/c(B’s Capital A/c) Dr. To P & L A/c ACCOUNTANCY – XII Case 2. Hidden Goodwill P, Q and R are partners in a firm sharing profits in the ratio of 3:2:1. R retires, and the balance in his capital account after making necessary adjustments on account of reserves, revolution of assets and liabilities works-out to be Rs. 60,000, P and Q agreed to pay him Rs. 75,000 in full settlement of his claim. It implies that Rs. 15,000 is R’s share of goodwill of the firm. Particulars L.f. Amt DR. Amt. Cr. P’s Capital A/c Q’s Capital A/c To R’s Capital A/c 9000 6000 15000 It implies that Rs. 15,000 is R’s share of goodwill of the firm ACCOUNTANCY – XII CASE3 : When old partner retires from the firm and a new partner starts gaining Step 1: find N.R. Step 2: find Gaining ratio = new ratio – old ratio Step 3: find retiring partners share in the firms goodwill (firms goodwill X retiring partner share) Step 4: multiply the sacrificer share with the firms goodwill (firms goodwill X sacrificer share {negative wala}) * if firms goodwill is not given than find the firms goodwill Step 4: pass journal entries Particulars L.f. Amt DR. Amt. Cr. For goodwill In G.R. Remaining partners capital A/c dr. Gainer’s a/c dr. To Sacrificer’s capital a/c To Retiring partners A/c (in gaining ratio and only the share of the retiring partner ) ACCOUNTANCY – XII Disposal of Amount Due to Retiring Partner Case 1. No info. When retiring partner’s whole amount is treated as loan Retiring Partner’s Capital A/c To Retiring Partner’s Loan A/c Case 2. When retiring partner is paid cash in full. Retiring Partner’s Capital A/c To Cash/Bank A/c Case 3. When retiring partner is partly paid in cash and the remaining amount treated as loan. Retiring Partner’s Capital A/c Dr. (Total Amount due) To Cash/Bank A/c (Amount Paid) To Retiring Partner’s Loan A/c (Amount of Loan) ? The balance of the retiring partner’s loan account is shown on the liabilities side of the Balance Sheet. ? The amount paid to the retiring partner’s will be deducted from the balance of bank in the balance sheet and arrange a bank o.d if required (if balance comes in negative) Some special entries Transaction Particulars L.f. Amt DR. Amt. Cr. Assets are sold off at a loss (asset of Rs.12k sold at Rs.10k ) Revaluation a/c (loss) To assets a/c 2 k 2k Bank a/c To assets 10k 10k Assets are sold off at a profit (asset of Rs.10k sold at Rs.12k ) Assets a/c To revaluation 2k 2k Bank a/c To assets 12k 12k Assets are taken over by a partner at a loss (asset of Rs.12k taken by a partner Rs.10k ) Revaluation a/c (loss) To assets a/c 2 k 2k Partner’s Capital A/c To Assets a/c 10k 10k Assets are taken over by a partner at a gain (asset of Rs.10 k taken by a partner Rs.12k ) Assets a/c To revaluation 2k 2k Partner’s Capital A/c To Assets a/c 12k 12k Assets are sold at par (10k = 10k) Bank a/c To assets (money received from sale of assets is added to bank a/c) 10k 10k Assets are taken over by a partner at par (10k = 10k) Partner’s Capital A/c To assets (partner’s capital a/c will be debited) 10k 10k If any Asset is not taken by the new firm Assets a/c To Old Partners capital A/c (will be distributed in the partners in old ratio) Liabilities are paid off Liabilities a/c dr. To bank a/c Liabilities are paid off at a discount (creditors of 10k settled at Rs.9k ) Liabilities a/c dr. To revaluation a/c 1k 1k Liabilities a/c dr. To bank a/c 9k 9k Liabilities are paid off more then the book value (creditors of 10k settled at Rs.11k ) Revaluation a/c dr. To Liabilities a/c 1k 1k Liabilities a/c dr. To bank a/c 11k 11k ACCOUNTANCY – XII Liabilities are paid off by a partner Liabilities a/c dr. To Partner’s Capital a/c 10k 10 k If any liability is not taken by the new firm Liabilities a/c dr. To Partner’s Capital a/c (will be distributed in partners in the old ratio) Decrease in the value of assets Revaluation a/c To assets a/c Increase in the value of assets Assets a/c To Revaluation a/c Increase in the value of liabilities Revaluation a/c To liabilities a/c Decrease in the value of liabilities liabilities a/c To Revaluation a/c Profit at the time of revaluation Revaluation a/c To old partners capital a/c (in old ratio) Losses at the time of revaluation Old Partners capital A/c To Revaluation a/c (in old ratio) For bank loan Bank To bank loan a/c (there is no entry for primary security and bank loan will be shown in the liabilities) Special cases When a bank loan is arranged for the payment of retiring partner Bank a/c To bank loan a/c Partner capital a/c To bank a/c When retiring partner is paid off and through cheque and arrange a bank overdraft (bank o.d will be shown in the balance sheet liabilities side) Partner capital a/c To bank a/c When any assets is mortgaged for the repayment of retiring partners capital a/c (there is no special treatment for the assets which has been mortgaged ) Bank a/c To bank loan a/c Partner capital a/c To bank a/c Revaluation of assets and liabilities (8 marks) Step 1 FIND N.R. Step 2 FIND G.R.= N.R.-O.R. Step 3 PASS ENTRIES GOODWILL RESERVES / LOSSES REVALUATION Remaining To retiring partners (G.R.) Reserves a/c(LIABILITY) To old partner’s capital a/c (O.R.) Revaluation a/c (profits) To old partner’s capital a/c (O.R. ) Old partner’s capital a/c (assets) To LOSSES/P&L dr./GW (O.R.) Old partner’s capital a/c (LOSSES) To Revaluation a/c Step 4 revaluation a/c Particulars Rs. Particulars Rs. Losses A L Gains A L Step 5 partner’s capital a/c (c retires)Read More
79 docs|41 tests
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1. What is goodwill in the context of commerce? |
2. How is goodwill treated in accounting? |
3. What are the factors that can lead to impairment of goodwill? |
4. How is the impairment of goodwill recorded in the financial statements? |
5. Can goodwill be increased or improved over time? |
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