Partnership

Admission

Medium

In line with what is prescribed by the Accounting Standard, goodwill appearing in the balance sheet is written off at the time of

Firm's dissolution

Revaluation of assets and liabilities

Firm's reconstitution

Preparation of Realisation A/c

✅ Correct Option: 3

According to Accounting Standard 26 (AS-26) on Intangible Assets, goodwill appearing in the balance sheet is written off at the time of firm's reconstitution.

When there is a change in the partnership firm (admission of a new partner, retirement or death of an existing partner), the firm is reconstituted. At this point, any goodwill already recorded in the books must be written off.

The journal entry for writing off goodwill is:

Particulars	Debit ₹	Credit ₹
Old Partners' Capital A/cs (in old ratio)	xxx
$\quad$ To Goodwill A/c		xxx
(Being goodwill written off in old profit sharing ratio)

Why at reconstitution?

The old goodwill represents the earning capacity built by the old partners. When the firm's structure changes, this goodwill should be adjusted by charging it to the old partners in their old profit sharing ratio. This prevents the new/continuing partners from bearing the burden of goodwill earned in the past.

After writing off the existing goodwill, if required, new goodwill can be raised based on the firm's current earning capacity. This ensures fair treatment to all partners - both old and new.

The other options are incorrect because at dissolution, goodwill is transferred to Realisation A/c (not written off), and revaluation does not require writing off goodwill - it deals with adjusting tangible assets and liabilities to current values.

2026: 11 May Shift 2

"Goodwill is the value of the reputation of a firm in respect of the profits expected in future over and above the normal profits." Which of the following statements are incorrect in the context of goodwill?

A. It is tangible asset.

B. Goodwill exists only when the firm earns super profits.

C. It is intangible asset.

D. Goodwill tends to be low if the business is centrally located or is at a place having heavy customer traffic,

Choose the correct answer from the options given below:

2026: 11 May Shift 2

Self - generated goodwill

2026: 21 May Shift 2

Find out gain or loss of Revaluation A/c from the given information:

The fixed assets should be valued at Rs. 3,31,000 (book value Rs. 2,80,000).
A provision of 5% on sundry debtors be made doubtful debts (Debtors amounted to Rs. 90,000).
The value of stock be reduced to Rs. 1,12,000 (book value 1,90,000).

2025: 13 May Shift 2

A and B are partners sharing profits equally with capitals of Rs 45,000 each. They admitted C as a new partner for one-third share in the profit. C brings in Rs 60,000 as his capital. Find the value of Firm Goodwill.

2025: 30 May Shift 1

On the admission of a new partner, an increase in the value of assets is debited to:

2026: 6 June Shift 1

In a partnership, admission of a new partner is followed by retirement within two months but revaluation did not occur at either of the event. What is the most significant risk?

In line with what is prescribed by the Accounting Standard, goodwill appearing in the balance sheet is written off at the time of

Solution

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