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Accounting Treatment of Goodwill in case of Dissolution of Firm

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Goodwill is thing but a monetary worth of a estimation of a business patient successful nan market, earned by nan patient by serving its customers. In a Partnership firm, Goodwill is treated for illustration an asset; each partner has a correct complete nan firm’s goodwill up to his/her stock successful nan business.

In lawsuit of nan Dissolution of a Partnership, Goodwill, for illustration different assets is realised, and each nan partners stock nan proceeds.

Accounting Treatment:

A. When Goodwill appears successful nan Balance Sheet of nan Firm:

1. On transportation to Realisation Account:

Journal Entry:

2. Realisation of Goodwill:

(i) Goodwill realised successful cash:

Journal Entry:

(ii) If immoderate of nan partners return complete nan Goodwill and agrees to salary for Goodwill:

Journal Entry:

B. When Goodwill does not look successful nan Balance Sheet of nan Firm:

1. On transportation to Realisation Account:

No Entry

Note:

Goodwill doesn’t beryllium successful nan books of nan firm, truthful thing is to beryllium transferred to Realisation Account. 

2. Realisation of Goodwill:

(i) Goodwill realised successful cash:

Journal Entry:

(ii) If immoderate of nan partners return complete nan Goodwill and agrees to salary for Goodwill:

Journal Entry:

Illustration:

Kapil, Rohit, and David are partners sharing profit and losses successful a ratio of 2 : 1 : 1. On 31st March 2020, they decided to dissolve nan firm. Their equilibrium Sheet arsenic connected nan aforesaid day stood arsenic :

Additional Information:

1. Half of nan Goodwill realised for ₹ 20,000 and half is taken complete by Rohit for ₹ 20,000. 

2. Assets Realised for:

Land and Building: ₹ 2,00,000

Plant: ₹ 1,00,000

Machinery: ₹ 56,000

Debtors: 50% of Book Value

3. Realisation Expense costs ₹ 4,000.

Prepare Realisation Account, Partner’s Loan Account, Partner’s Capital Account and Cash Account and Pass basal Journal Entries.

Solution:

Working Note:

1. Value of Asset Realised:

Goodwill (Half) = 20,000

Land and Building  = 2,00,000

Plant = 1,00,000

Machinery = 56,000

Debtors =  96,000\times\frac{50}{100}~=~48,000

Total = 4,24,000


Editor: Naga



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