Admission of a new partner, Financial Accounting

Admission of a new partner

When a new partner joins the firm/partnership, the new partner will enjoy the benefits arising as a result of goodwill created by the old existing partners.  This is because; the new partner will get his share of profits which he may not have received had he decided to start a new business.

It is thus fair that the new partner pays into the firm not only his capital contribution but also his share of the goodwill.

In some situations, the new partner will pay cost directly for his share of goodwill while in most cases, goodwill will be deducted from his total contributions to the business. However, the new partner pays in cash or not for his share of goodwill, the following entries are normally passed in the partners current accounts.

Posted Date: 12/11/2012 6:12:16 AM | Location : United States







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