Accounting of Goodwill

1. Change in PSR

1.1. Gaining Partner Capital A/c Dr. To Sacrificing Partner Capital A/c (Adjustment of Goodwill due to change in PSR)

2. Admission of a Partner

2.1. Step-1 If Goodwill A/c already appearing in the books:

2.1.1. Old Partner Capital A/c Dr. To Goodwill A/c (Goodwill existing in the books written off)

2.1.1.1. If new Partner brings amount of Premium for Goodwill in Cash

2.1.1.1.1. Cash/Bank A/c Dr. To Premium for Goodwill A/c (Premium for Goodwill bought in Cash by New Partner)

2.1.1.2. If new Partner does not bring Premium for Goodwill in Cash

2.1.1.2.1. New Partner's Capital A/c Dr. To Old Partner's Capital A/c (Current A/c of new Partner debited from his share of goodwill and Capital A/c of old partner's credited in their Sacrificing Ratio)

2.1.1.3. If New Partner pay the Premium for Goodwill privately

2.1.1.3.1. No Entry will passed in this case

3. Retirement and Death of a Partner

3.1. Step-1 If Goodwill A/c already appearing in books:

3.1.1. Old Partner Capital A/c Dr. To Goodwill A/c (Goodwill existing in the books written off)

3.1.1.1. Step-2 Adjustment of Goodwill will be made through Partner's Capital Accounts:

3.1.1.1.1. Continuing Partner's Capital A/c Dr. To Retiring/Deceased Partner's Capital A/c (Retiring/Deceased Partner's share of goodwill adjusted to continuing Partner's in the Gaining Ratio)

4. Dissolution of Partnership Firm

4.1. It would be treated like any other asset. If it already appears in books, it will be transferred, like all other assets, to the debit side of Realisation Account.

4.1.1. Realisation A/c Dr. To Goodwill A/c (Being goodwill transferred to Realisation A/c)

4.1.1.1. When Goodwill is sold in cash

4.1.1.1.1. Bank/Cash A/c Dr. To Realisation A/c (Being goodwill is sold)