Goodwill help needed urgently

anwarbiggyanwarbiggy New MemberPosts: 12Registered
Hi there Ladies and Gents,

My friend is taking an exam soon and has asked the following question (I tried to answer it as best I can, but apparently its wrong)

How is good will handled before an admittance of a new partner, then after admittance of the new partner?
........................................................................................................................

This is the question in one of the exam papers;

Cambell & Holmes have both invested 50,000 each into the business. Goodwill is valued at £100,000. PSR 1:1

Jenny Hardy wants into the partnership and when she does the ratio will be 2:2:1
She has also bought in £30,000 which has not been reflected into the accounts but has been paid into the current account

(1) write the goodwill into the accounts

Thanks in advance guys

Comments

  • daniella75daniella75 New Member Posts: 11Registered
    1) write the goodwill into the accounts
    Old partners: goodwill created
    - debit goodwill account
    capital Cambell £50,000
    capital Holmes £50,000
    - credit capital accounts (in their old profit-sharing ratio 1:1)
    goodwill Cambell £50,000
    goodwill Holmes £50,000

    Old partners + new partner: goodwill written off
    - debit capital accounts (in their new profit-sharing ratio 2:2:1)
    goodwill Cambell £40,000
    goodwill Holmes £40,000
    goodwill Hardy £20,000
    - credit goodwill account £100,000
    capital Cambel £40,000
    capital Holmes £40,000
    capital Hardy £20,000
  • anwarbiggyanwarbiggy New Member Posts: 12Registered
    Thank you ever so much Daniella I really appreciate your help
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