PPT : Treatment of goodwill in Partnership Accounts - 2 | Accounting for CA Foundation PDF Download

 Page 1


Treatment of Goodwill in 
Partnership Accounts 
CPT Section A Fundamentals of Accountancy 
Chapter 8 Unit 2 – Part 2 
CA. Ajay Lunawat 
 
Page 2


Treatment of Goodwill in 
Partnership Accounts 
CPT Section A Fundamentals of Accountancy 
Chapter 8 Unit 2 – Part 2 
CA. Ajay Lunawat 
 
Learning objectives 
Need for valuation of Goodwill 
Valuation of Goodwill in case of admission of partner 
Accounting treatment of goodwill in case of 
• admission of a new partner 
• change in profit sharing ratio 
• retirement or death of a partner 
Page 3


Treatment of Goodwill in 
Partnership Accounts 
CPT Section A Fundamentals of Accountancy 
Chapter 8 Unit 2 – Part 2 
CA. Ajay Lunawat 
 
Learning objectives 
Need for valuation of Goodwill 
Valuation of Goodwill in case of admission of partner 
Accounting treatment of goodwill in case of 
• admission of a new partner 
• change in profit sharing ratio 
• retirement or death of a partner 
Need for valuation of Goodwill 
Whenever there is any change in the existing relationship of the 
partners inter se, some partners have to sacrifice their future 
profit and some others would gain 
Gaining Partner 
Should compensate 
Sacrificing Partner 
Page 4


Treatment of Goodwill in 
Partnership Accounts 
CPT Section A Fundamentals of Accountancy 
Chapter 8 Unit 2 – Part 2 
CA. Ajay Lunawat 
 
Learning objectives 
Need for valuation of Goodwill 
Valuation of Goodwill in case of admission of partner 
Accounting treatment of goodwill in case of 
• admission of a new partner 
• change in profit sharing ratio 
• retirement or death of a partner 
Need for valuation of Goodwill 
Whenever there is any change in the existing relationship of the 
partners inter se, some partners have to sacrifice their future 
profit and some others would gain 
Gaining Partner 
Should compensate 
Sacrificing Partner 
Valuation of Goodwill in case of 
admission of partner 
• When a new partner is admitted into a 
partnership, certain adjustments in accounts 
become necessary 
New partner will 
acquire a share 
in the profits 
The old partners 
will stand to 
lose 
Page 5


Treatment of Goodwill in 
Partnership Accounts 
CPT Section A Fundamentals of Accountancy 
Chapter 8 Unit 2 – Part 2 
CA. Ajay Lunawat 
 
Learning objectives 
Need for valuation of Goodwill 
Valuation of Goodwill in case of admission of partner 
Accounting treatment of goodwill in case of 
• admission of a new partner 
• change in profit sharing ratio 
• retirement or death of a partner 
Need for valuation of Goodwill 
Whenever there is any change in the existing relationship of the 
partners inter se, some partners have to sacrifice their future 
profit and some others would gain 
Gaining Partner 
Should compensate 
Sacrificing Partner 
Valuation of Goodwill in case of 
admission of partner 
• When a new partner is admitted into a 
partnership, certain adjustments in accounts 
become necessary 
New partner will 
acquire a share 
in the profits 
The old partners 
will stand to 
lose 
Example of admission 
If their profits 
are Rs. 20,000 
A will get Rs. 
12,000 
B will get Rs. 
8,000 
A and B are partners sharing profits in the ratio of 3:2