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ACCOUNTANCY – XII          
 
TREATMENT OF GOODWILL 
CASE1: When new partner bring his share of goodwill (premium method) 
Step 1: find N.R. 
Step 2: find S.R. (S.R.= O.R-N.R) 
Step 3: find new partners share in the firms goodwill(firms goodwill X news partners share) 
*if new partners share of goodwill is given than no need of step 3 
* 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 capital Bank A/c                                                                      Dr. 
   To New partners capital A/c(C’s Capital A/c) 
   
 
For premium for goodwill Bank A/c                                                                      Dr. 
  To premium for goodwill A/c 
   
For distribution of 
goodwill(goodwill is retained in 
the business)         In S.R 
Premium for goodwill A/c                                        Dr. 
   To old Partners capital A/c(A’s Capital A/c) 
   To old Partners capital A/c(B’s Capital A/c) 
   
 
 
Optional entries 
 Particulars L.f. Amt 
DR. 
Amt. Cr. 
When  goodwill is retained in the firm 
                                        In S.R 
Premium for goodwill A/c                               Dr. 
   To old Partners capital A/c(A’s Capital A/c) 
   To old Partners capital A/c(B’s Capital A/c) 
   
 
When goodwill is withdrawn by 
partners 
                                        In S.R 
Old Partners capital A/c(A’s Capital A/c)      Dr. 
Old Partners capital A/c(B’s Capital A/c)      Dr. 
    To bank A/c  
   
 
 
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. 
    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) 
   To New Partners capital A/c(C’s Capital A/c) 
   
 
 
 
When goodwill is bought in kind(other 
than cash)  
Assets A/c                                                          Dr. 
    To Premium for goodwill 
   
 
When capital is bought In kind(other 
than cash) 
Assets A/c                                                           Dr. 
    To New partners capital A/c 
   
 
 
 
 
 
 
  
Page 2


ACCOUNTANCY – XII          
 
TREATMENT OF GOODWILL 
CASE1: When new partner bring his share of goodwill (premium method) 
Step 1: find N.R. 
Step 2: find S.R. (S.R.= O.R-N.R) 
Step 3: find new partners share in the firms goodwill(firms goodwill X news partners share) 
*if new partners share of goodwill is given than no need of step 3 
* 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 capital Bank A/c                                                                      Dr. 
   To New partners capital A/c(C’s Capital A/c) 
   
 
For premium for goodwill Bank A/c                                                                      Dr. 
  To premium for goodwill A/c 
   
For distribution of 
goodwill(goodwill is retained in 
the business)         In S.R 
Premium for goodwill A/c                                        Dr. 
   To old Partners capital A/c(A’s Capital A/c) 
   To old Partners capital A/c(B’s Capital A/c) 
   
 
 
Optional entries 
 Particulars L.f. Amt 
DR. 
Amt. Cr. 
When  goodwill is retained in the firm 
                                        In S.R 
Premium for goodwill A/c                               Dr. 
   To old Partners capital A/c(A’s Capital A/c) 
   To old Partners capital A/c(B’s Capital A/c) 
   
 
When goodwill is withdrawn by 
partners 
                                        In S.R 
Old Partners capital A/c(A’s Capital A/c)      Dr. 
Old Partners capital A/c(B’s Capital A/c)      Dr. 
    To bank A/c  
   
 
 
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. 
    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) 
   To New Partners capital A/c(C’s Capital A/c) 
   
 
 
 
When goodwill is bought in kind(other 
than cash)  
Assets A/c                                                          Dr. 
    To Premium for goodwill 
   
 
When capital is bought In kind(other 
than cash) 
Assets A/c                                                           Dr. 
    To New partners capital A/c 
   
 
 
 
 
 
 
  
ACCOUNTANCY – XII          
 
CASE2: When new partner does not bring his share of goodwill (memorandum method) 
Step 1: find N.R. 
Step 2: find S.R. (S.R.= O.R-N.R) 
Step 3: find new partners share in the firms goodwill(firms goodwill X news partners share) 
*if new partners share of goodwill is given than no need of step 3 
* 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 capital Bank A/c                                                                Dr. 
   To New partners capital A/c(C’s Capital A/c) 
   
 
For distribution of goodwill 
                                        In S.R 
New partners current A/c(C’s Current  A/c)    Dr. 
   To old Partners capital A/c(A’s Capital A/c) 
   To old Partners capital A/c(B’s Capital A/c) 
   
 
 
    
  
 
 
  
Page 3


ACCOUNTANCY – XII          
 
TREATMENT OF GOODWILL 
CASE1: When new partner bring his share of goodwill (premium method) 
Step 1: find N.R. 
Step 2: find S.R. (S.R.= O.R-N.R) 
Step 3: find new partners share in the firms goodwill(firms goodwill X news partners share) 
*if new partners share of goodwill is given than no need of step 3 
* 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 capital Bank A/c                                                                      Dr. 
   To New partners capital A/c(C’s Capital A/c) 
   
 
For premium for goodwill Bank A/c                                                                      Dr. 
  To premium for goodwill A/c 
   
For distribution of 
goodwill(goodwill is retained in 
the business)         In S.R 
Premium for goodwill A/c                                        Dr. 
   To old Partners capital A/c(A’s Capital A/c) 
   To old Partners capital A/c(B’s Capital A/c) 
   
 
 
Optional entries 
 Particulars L.f. Amt 
DR. 
Amt. Cr. 
When  goodwill is retained in the firm 
                                        In S.R 
Premium for goodwill A/c                               Dr. 
   To old Partners capital A/c(A’s Capital A/c) 
   To old Partners capital A/c(B’s Capital A/c) 
   
 
When goodwill is withdrawn by 
partners 
                                        In S.R 
Old Partners capital A/c(A’s Capital A/c)      Dr. 
Old Partners capital A/c(B’s Capital A/c)      Dr. 
    To bank A/c  
   
 
 
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. 
    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) 
   To New Partners capital A/c(C’s Capital A/c) 
   
 
 
 
When goodwill is bought in kind(other 
than cash)  
Assets A/c                                                          Dr. 
    To Premium for goodwill 
   
 
When capital is bought In kind(other 
than cash) 
Assets A/c                                                           Dr. 
    To New partners capital A/c 
   
 
 
 
 
 
 
  
ACCOUNTANCY – XII          
 
CASE2: When new partner does not bring his share of goodwill (memorandum method) 
Step 1: find N.R. 
Step 2: find S.R. (S.R.= O.R-N.R) 
Step 3: find new partners share in the firms goodwill(firms goodwill X news partners share) 
*if new partners share of goodwill is given than no need of step 3 
* 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 capital Bank A/c                                                                Dr. 
   To New partners capital A/c(C’s Capital A/c) 
   
 
For distribution of goodwill 
                                        In S.R 
New partners current A/c(C’s Current  A/c)    Dr. 
   To old Partners capital A/c(A’s Capital A/c) 
   To old Partners capital A/c(B’s Capital A/c) 
   
 
 
    
  
 
 
  
ACCOUNTANCY – XII          
 
CASE3: When new partner brings a part of his share of goodwill (premium +memorandum method) 
Step 1: find N.R. 
Step 2: find S.R. (S.R.= O.R-N.R) 
Step 3: find new partners share in the firms goodwill(firms goodwill X news partners share) 
*if new partners share of goodwill is given than no need of step 3 
* 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 capital Bank A/c                                                               Dr. 
   To New partners capital A/c(C’s Capital A/c) 
 40000  
40000 
For premium for goodwill 
(premium bought by the partner ) 
Bank A/c                                                               Dr. 
  To premium for goodwill A/c 
 5000  
5000 
For distribution of goodwill 
(premium bought by the partner 
and not bought by the partner ) S.R 
Premium for goodwill A/c                                 Dr. 
New partners capital A/c(C’s Current A/c)      Dr.       
   To old Partners capital A/c(A’s Capital A/c) 
   To old Partners capital A/c(B’s Capital A/c) 
  5000 
10000 
 
 
 
 
9000 
6000 
 
 
  
  
Page 4


ACCOUNTANCY – XII          
 
TREATMENT OF GOODWILL 
CASE1: When new partner bring his share of goodwill (premium method) 
Step 1: find N.R. 
Step 2: find S.R. (S.R.= O.R-N.R) 
Step 3: find new partners share in the firms goodwill(firms goodwill X news partners share) 
*if new partners share of goodwill is given than no need of step 3 
* 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 capital Bank A/c                                                                      Dr. 
   To New partners capital A/c(C’s Capital A/c) 
   
 
For premium for goodwill Bank A/c                                                                      Dr. 
  To premium for goodwill A/c 
   
For distribution of 
goodwill(goodwill is retained in 
the business)         In S.R 
Premium for goodwill A/c                                        Dr. 
   To old Partners capital A/c(A’s Capital A/c) 
   To old Partners capital A/c(B’s Capital A/c) 
   
 
 
Optional entries 
 Particulars L.f. Amt 
DR. 
Amt. Cr. 
When  goodwill is retained in the firm 
                                        In S.R 
Premium for goodwill A/c                               Dr. 
   To old Partners capital A/c(A’s Capital A/c) 
   To old Partners capital A/c(B’s Capital A/c) 
   
 
When goodwill is withdrawn by 
partners 
                                        In S.R 
Old Partners capital A/c(A’s Capital A/c)      Dr. 
Old Partners capital A/c(B’s Capital A/c)      Dr. 
    To bank A/c  
   
 
 
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. 
    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) 
   To New Partners capital A/c(C’s Capital A/c) 
   
 
 
 
When goodwill is bought in kind(other 
than cash)  
Assets A/c                                                          Dr. 
    To Premium for goodwill 
   
 
When capital is bought In kind(other 
than cash) 
Assets A/c                                                           Dr. 
    To New partners capital A/c 
   
 
 
 
 
 
 
  
ACCOUNTANCY – XII          
 
CASE2: When new partner does not bring his share of goodwill (memorandum method) 
Step 1: find N.R. 
Step 2: find S.R. (S.R.= O.R-N.R) 
Step 3: find new partners share in the firms goodwill(firms goodwill X news partners share) 
*if new partners share of goodwill is given than no need of step 3 
* 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 capital Bank A/c                                                                Dr. 
   To New partners capital A/c(C’s Capital A/c) 
   
 
For distribution of goodwill 
                                        In S.R 
New partners current A/c(C’s Current  A/c)    Dr. 
   To old Partners capital A/c(A’s Capital A/c) 
   To old Partners capital A/c(B’s Capital A/c) 
   
 
 
    
  
 
 
  
ACCOUNTANCY – XII          
 
CASE3: When new partner brings a part of his share of goodwill (premium +memorandum method) 
Step 1: find N.R. 
Step 2: find S.R. (S.R.= O.R-N.R) 
Step 3: find new partners share in the firms goodwill(firms goodwill X news partners share) 
*if new partners share of goodwill is given than no need of step 3 
* 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 capital Bank A/c                                                               Dr. 
   To New partners capital A/c(C’s Capital A/c) 
 40000  
40000 
For premium for goodwill 
(premium bought by the partner ) 
Bank A/c                                                               Dr. 
  To premium for goodwill A/c 
 5000  
5000 
For distribution of goodwill 
(premium bought by the partner 
and not bought by the partner ) S.R 
Premium for goodwill A/c                                 Dr. 
New partners capital A/c(C’s Current A/c)      Dr.       
   To old Partners capital A/c(A’s Capital A/c) 
   To old Partners capital A/c(B’s Capital A/c) 
  5000 
10000 
 
 
 
 
9000 
6000 
 
 
  
  
ACCOUNTANCY – XII          
 
Case 4: When S.R. comes in to negative (old partners starts gaining) at the time of admission of the partner.  
Step 1: find N.R. 
Step 2: find S.R. (S.R.= O.R-N.R) * this comes into negative for a old partner 
Step 3: find firms goodwill by the new partners share (firm goodwill = reciprocal of new partner profit share X new  
Partner’s goodwill ) 
Step 4: multiply the firms goodwill with gainers partner share  
Step 5: pass journal entries 
Compulsory Journal entries 
 Particulars L.f. Amt 
DR. 
Amt. Cr. 
For capital Bank A/c                                                                Dr. 
   To New partners capital A/c(C’s Capital A/c) 
   
 
For premium for goodwill 
(premium bought by the partner ) 
Bank A/c                                                                Dr. 
  To premium for goodwill A/c 
   
 
For distribution of goodwill 
(premium bought by the partner) 
                                                            
S.R 
Premium for goodwill A/c                                  Dr. 
Gainers A/c                                                            Dr.       
   To Partners capital A/c(only sacrificing partner)  
   To Sacrificer A/c 
  
 
 
 
 
 
 
 
 
    
  
 
 
  
Page 5


ACCOUNTANCY – XII          
 
TREATMENT OF GOODWILL 
CASE1: When new partner bring his share of goodwill (premium method) 
Step 1: find N.R. 
Step 2: find S.R. (S.R.= O.R-N.R) 
Step 3: find new partners share in the firms goodwill(firms goodwill X news partners share) 
*if new partners share of goodwill is given than no need of step 3 
* 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 capital Bank A/c                                                                      Dr. 
   To New partners capital A/c(C’s Capital A/c) 
   
 
For premium for goodwill Bank A/c                                                                      Dr. 
  To premium for goodwill A/c 
   
For distribution of 
goodwill(goodwill is retained in 
the business)         In S.R 
Premium for goodwill A/c                                        Dr. 
   To old Partners capital A/c(A’s Capital A/c) 
   To old Partners capital A/c(B’s Capital A/c) 
   
 
 
Optional entries 
 Particulars L.f. Amt 
DR. 
Amt. Cr. 
When  goodwill is retained in the firm 
                                        In S.R 
Premium for goodwill A/c                               Dr. 
   To old Partners capital A/c(A’s Capital A/c) 
   To old Partners capital A/c(B’s Capital A/c) 
   
 
When goodwill is withdrawn by 
partners 
                                        In S.R 
Old Partners capital A/c(A’s Capital A/c)      Dr. 
Old Partners capital A/c(B’s Capital A/c)      Dr. 
    To bank A/c  
   
 
 
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. 
    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) 
   To New Partners capital A/c(C’s Capital A/c) 
   
 
 
 
When goodwill is bought in kind(other 
than cash)  
Assets A/c                                                          Dr. 
    To Premium for goodwill 
   
 
When capital is bought In kind(other 
than cash) 
Assets A/c                                                           Dr. 
    To New partners capital A/c 
   
 
 
 
 
 
 
  
ACCOUNTANCY – XII          
 
CASE2: When new partner does not bring his share of goodwill (memorandum method) 
Step 1: find N.R. 
Step 2: find S.R. (S.R.= O.R-N.R) 
Step 3: find new partners share in the firms goodwill(firms goodwill X news partners share) 
*if new partners share of goodwill is given than no need of step 3 
* 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 capital Bank A/c                                                                Dr. 
   To New partners capital A/c(C’s Capital A/c) 
   
 
For distribution of goodwill 
                                        In S.R 
New partners current A/c(C’s Current  A/c)    Dr. 
   To old Partners capital A/c(A’s Capital A/c) 
   To old Partners capital A/c(B’s Capital A/c) 
   
 
 
    
  
 
 
  
ACCOUNTANCY – XII          
 
CASE3: When new partner brings a part of his share of goodwill (premium +memorandum method) 
Step 1: find N.R. 
Step 2: find S.R. (S.R.= O.R-N.R) 
Step 3: find new partners share in the firms goodwill(firms goodwill X news partners share) 
*if new partners share of goodwill is given than no need of step 3 
* 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 capital Bank A/c                                                               Dr. 
   To New partners capital A/c(C’s Capital A/c) 
 40000  
40000 
For premium for goodwill 
(premium bought by the partner ) 
Bank A/c                                                               Dr. 
  To premium for goodwill A/c 
 5000  
5000 
For distribution of goodwill 
(premium bought by the partner 
and not bought by the partner ) S.R 
Premium for goodwill A/c                                 Dr. 
New partners capital A/c(C’s Current A/c)      Dr.       
   To old Partners capital A/c(A’s Capital A/c) 
   To old Partners capital A/c(B’s Capital A/c) 
  5000 
10000 
 
 
 
 
9000 
6000 
 
 
  
  
ACCOUNTANCY – XII          
 
Case 4: When S.R. comes in to negative (old partners starts gaining) at the time of admission of the partner.  
Step 1: find N.R. 
Step 2: find S.R. (S.R.= O.R-N.R) * this comes into negative for a old partner 
Step 3: find firms goodwill by the new partners share (firm goodwill = reciprocal of new partner profit share X new  
Partner’s goodwill ) 
Step 4: multiply the firms goodwill with gainers partner share  
Step 5: pass journal entries 
Compulsory Journal entries 
 Particulars L.f. Amt 
DR. 
Amt. Cr. 
For capital Bank A/c                                                                Dr. 
   To New partners capital A/c(C’s Capital A/c) 
   
 
For premium for goodwill 
(premium bought by the partner ) 
Bank A/c                                                                Dr. 
  To premium for goodwill A/c 
   
 
For distribution of goodwill 
(premium bought by the partner) 
                                                            
S.R 
Premium for goodwill A/c                                  Dr. 
Gainers A/c                                                            Dr.       
   To Partners capital A/c(only sacrificing partner)  
   To Sacrificer A/c 
  
 
 
 
 
 
 
 
 
    
  
 
 
  
ACCOUNTANCY – XII          
 
Case 5: Hidden goodwill / inferred goodwill 
Step 1: find N.R. 
Step 2: find S.R. (S.R.= O.R-N.R) 
Step 3:  find firms capital by the new partners share (firm capital = reciprocal of new partner profit share X new  
Partner’s capital) 
Step 4: find hidden goodwill (firms capital as per the new partner share – firms existing capital {A+B+C} ) 
Step 5: find new partners share in the firm’s hidden goodwill (firm’s goodwill X news partners share) 
Step 6: pass journal entries 
Compulsory Journal entries 
 Particulars L.f. Amt 
DR. 
Amt. Cr. 
For capital Bank A/c                                                                 Dr. 
   To New partners capital A/c(C’s Capital A/c) 
   
 
For distribution of goodwill 
                                        In S.R 
New partners capital A/c(C’s Current  A/c)     Dr. 
   To old Partners capital A/c(A’s Capital A/c) 
   To old Partners capital A/c(B’s Capital A/c) 
   
 
  
 
 
 
 
  
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FAQs on Treatment of Goodwill & Others Cases - Crash Course of Accountancy - Class 12 - Commerce

1. What is goodwill in commerce?
Ans. Goodwill in commerce refers to the intangible value of a business that is not directly related to its physical assets. It represents the reputation, customer loyalty, brand recognition, and other intangible factors that contribute to the business's overall value.
2. How is goodwill treated in accounting?
Ans. In accounting, goodwill is initially recorded as an intangible asset on the balance sheet when a business is acquired. It is calculated as the difference between the purchase price of the business and the fair value of its identifiable net assets. Goodwill is subject to an annual impairment test, and any decrease in its value is recognized as an expense on the income statement.
3. What are the methods used to determine the value of goodwill?
Ans. There are several methods used to determine the value of goodwill, including the excess earnings method, the market capitalization method, the discounted cash flow method, and the royalty relief method. These methods involve assessing the business's future earnings potential, market conditions, and other relevant factors to estimate the value of goodwill.
4. Can goodwill be sold or transferred separately from the business?
Ans. Yes, goodwill can be sold or transferred separately from the business. However, it is important to note that the transfer or sale of goodwill typically requires the agreement and consent of both parties involved. It is often included as part of a larger business acquisition or sale transaction.
5. How does the treatment of goodwill differ under different accounting standards?
Ans. The treatment of goodwill can differ under different accounting standards. For example, under International Financial Reporting Standards (IFRS), goodwill is subject to an annual impairment test and is not amortized. In contrast, under Generally Accepted Accounting Principles (GAAP) in the United States, goodwill is also subject to an annual impairment test but is amortized over a specific period of time, usually not exceeding 15 years. It is important for businesses to comply with the accounting standards applicable in their jurisdiction when accounting for goodwill.
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