# Partnerships / Goodwilll

Registered Posts: 2 New contributor ?
Hey, I have my FRA exam in 2 weeks and just going through some past papers. I really struggle with the partnership section, for eg in the Dec 07 paper I have no idea how to work out the Appropration A/C or the Goodwill - I dont even know where the figures are from so I cant make sense of the answers

Can anyone got any one help? ? Ive looked around the net and my book is rubbish!

Thanks and good luck those with exams

• Registered Posts: 184 ? ? ?
Goodwill

The figure for always be given in question.
For example goodwill evaluated of £ 50,000
Old profit sharing ratio between A,B,C is 2:2:1
New profit sharing ratio is 3:2 between A & C
B is retiring and goodwill must be removed from a/c

First open Goodwill account as goodwill is an assets [intangibe]

goodwill a/c
Goddwill created 50000 Goodwill removed, 50000
A 20000 Capital a/c new ratio A 30000
B 20000 Capital a/c C 20000
c 10000
• Registered Posts: 145 ? ? ?
Goodwill and Appropriation

Goodwill – the easiest way for me to remember is:

Give the existing partners the goodwill by crediting their capital accounts (the same side as their capital figure)
Then with the new set up of partners take it back again (eliminate it) on the debit side so the figures balance out.

Eg:
Tom and Dick are current partners, Harry joins them. Goodwill is valued at 30000, all to have an equal share.

First -
Tom and Dick's capital accounts – 15000 credit each ‘Goodwill Created’

Second -
Tom, Dick and Harry – 10000 debit each ‘Goodwill eliminated'.

The other sides to the double entries would be made in the Goodwill Account.

Then balance off the capital accounts.

I believe Goodwill is not mentioned in the Appropriation Account as it's not actual money.

Appropriation

Use a table - Start off with your net profit
List all deductions paid to the partners – salary, interest on capital
Total net profit remaining is then split between partners.

If you have a change in partnership and there’s two periods to work out, then make sure you start off with the net profit separated into those two periods.

There's a very good example in the Unit 5 Osborne Book on page 270.

Does that make sense Dee? - I think what I’ve said is correct – hopefully someone will let us know if it isn’t!:thumbup: