How should goodwill be treated in the accounts of a partnership?
Practice Questions
1 question
Q1
How should goodwill be treated in the accounts of a partnership?
As an asset
As a liability
Not recorded
As an expense
Goodwill is treated as an intangible asset in the accounts of a partnership.
Questions & Step-by-step Solutions
1 item
Q
Q: How should goodwill be treated in the accounts of a partnership?
Solution: Goodwill is treated as an intangible asset in the accounts of a partnership.
Steps: 5
Step 1: Understand what goodwill is. Goodwill is the value of a business's reputation, customer relationships, and other intangible factors.
Step 2: Recognize that in a partnership, goodwill is considered an intangible asset. This means it is not a physical item but still has value.
Step 3: Determine how to record goodwill in the partnership's accounts. It should be listed on the balance sheet as an asset.
Step 4: Decide how to value goodwill. This can be based on methods like the average profits of the business or a valuation agreed upon by the partners.
Step 5: If a partner leaves or the partnership is dissolved, goodwill may need to be revalued and compensated to the departing partner.
