How is goodwill treated in the accounts of a partnership firm?
Practice Questions
Q1
How is goodwill treated in the accounts of a partnership firm?
It is recorded as an asset
It is not recorded
It is recorded as a liability
It is recorded in the profit and loss account
Questions & Step-by-Step Solutions
How is goodwill treated in the accounts of a partnership firm?
Step 1: Understand what goodwill is. Goodwill is the value of a business's reputation, customer relationships, and brand.
Step 2: Recognize that goodwill is not a physical asset like buildings or equipment; it is an intangible asset.
Step 3: In a partnership firm, goodwill is recorded in the financial accounts to reflect its value.
Step 4: When a new partner joins or an existing partner leaves, the value of goodwill may be calculated and shared among partners.
Step 5: Goodwill is usually recorded on the balance sheet under intangible assets.
Goodwill as an Intangible Asset – Goodwill represents the value of a firm's brand, customer relationships, and other intangible factors that contribute to its profitability.
