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Treatment of Goodwill in Partnership Accounts Video Lecture | Principles and Practice of Accounting - CA Foundation

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FAQs on Treatment of Goodwill in Partnership Accounts Video Lecture - Principles and Practice of Accounting - CA Foundation

1. What is goodwill in partnership accounts?
Ans. Goodwill in partnership accounts refers to the intangible asset that arises when a partnership is valued at an amount higher than the sum of its individual tangible assets. It represents the reputation, customer base, brand value, and other intangible factors that contribute to the partnership's value.
2. How is goodwill treated in partnership accounts?
Ans. Goodwill is initially recorded in the books of a partnership when a new partner is admitted or an existing partner retires or dies. It is added to the capital accounts of the partners in their profit-sharing ratio. If the goodwill amount is not given, it is calculated by comparing the value of the partnership with and without the new partner or the retiring/deceased partner.
3. Can goodwill be revalued in partnership accounts?
Ans. Yes, goodwill can be revalued in partnership accounts. If there are any changes in the partnership agreement or if there is a change in the profit-sharing ratio, the goodwill needs to be revalued. The revaluation of goodwill involves reassessing its value based on the new circumstances and adjusting the partners' capital accounts accordingly.
4. How is goodwill distributed in case of a partnership dissolution?
Ans. In case of partnership dissolution, the goodwill is usually distributed among the partners based on their profit-sharing ratio. The existing goodwill is realized and the amount is distributed in cash or through adjustments in the partners' capital accounts. The distribution of goodwill depends on the terms agreed upon in the partnership agreement or as per the mutual understanding of the partners.
5. Can goodwill be transferred to a new partnership?
Ans. Yes, goodwill can be transferred to a new partnership. When a new partnership is formed by merging two or more existing partnerships, the goodwill of the old partnerships can be transferred to the new partnership. The value of the goodwill is determined and recorded in the books of the new partnership based on the agreed terms and conditions. The partners of the new partnership will then share the benefits and responsibilities associated with the transferred goodwill.
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