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Karan, Nakul and Asha were partners in a firm sharing profits and losses in the ratio 3: 2: 1. At the time of admission of a partner, the goodwill of the firm was valued at Rs. 2,00,000. The accountant of the firm passed the entry in the books of accounts and thereafter showed goodwill Rs. 2,00,000 as an asset in the Balance Sheet Is he correct in doing so? Why? (C.B.S.E Sample Paper, 2015)

SOLUTION

Accountant is not correct As per AS – 26, only purchased goodwill can be shown non purchased in the books. In this case, goodwill cannot be recorded because it is non-purchase goodwill and no consideration in money be recorded or money’s worth has been paid for it.







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