Goodwill help needed urgently

anwarbiggy

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?
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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

daniella75

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

anwarbiggy

Thank you ever so much Daniella I really appreciate your help