Practicing Success
How goodwill is treated at the time of retirement of a partner? |
Remaining Partner's Capital A/cs Dr. (In Gaining Ratio) Remaining Partner's Capital A/cs Dr. (In New Ratio) Goodwill A/c Dr. Goodwill A/c Dr. |
Remaining Partner's Capital A/cs Dr. (In Gaining Ratio) |
The retiring or deceased partner is entitled to his share of goodwill at the time of retirement/death because the goodwill has been earned by the firm with the efforts of all the existing partners. Hence, at the time of retirement/death of a partner, goodwill is valued as per agreement among the partners the retiring/ deceased partner compensated for his share of goodwill by the continuing partners (who have gained due to acquisition of share of profit from the retiring/ deceased partner) in their gaining ratio. |