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How is goodwill calculated when a new partner joins a partnership?
How is goodwill calculated when a new partner joins a partnership?
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Practice Questions
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Q1
How is goodwill calculated when a new partner joins a partnership?
Average profit x Number of years
Total assets - Total liabilities
Capital contribution of new partner - Net assets
Net assets - Capital contribution of new partner
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Goodwill is calculated as the capital contribution of the new partner minus the net assets of the partnership.
Questions & Step-by-step Solutions
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Q
Q: How is goodwill calculated when a new partner joins a partnership?
Solution:
Goodwill is calculated as the capital contribution of the new partner minus the net assets of the partnership.
Steps: 3
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Step 1: Determine the capital contribution of the new partner. This is the amount of money or assets the new partner is bringing into the partnership.
Step 2: Calculate the net assets of the partnership. This is the total value of the partnership's assets minus its liabilities.
Step 3: Subtract the net assets of the partnership from the capital contribution of the new partner. The result is the goodwill.
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