A, B, C and D were partners in a firm sharing profits in the ratio of 4: 3: 2: 1. On 1st January, 2015, they admitted E as a new partner for 1 / 10 share in the profits. E brought Rs. 10,000 for his share of goodwill premium which was correctly recorded in the books by the accountant. The accountant showed goodwill at Rs. 1,00,000 in the books. Was the accountant correct in doing so? Give reason in support of your answer. (Delhi 2015)

Post category:Accountancy
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SOLUTION

No, the accountant was not correct in doing so.
Reason: Since the new partner has brought his share of goodwill in cash against self-generated goodwill, it cannot be recognised in the books of account. Only purchased goodwill can be recognised in the books of account as per AS-26.

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