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How is goodwill calculated in a partnership when a new partner is admitted?
How is goodwill calculated in a partnership when a new partner is admitted?
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How is goodwill calculated in a partnership when a new partner is admitted?
Total Assets - Total Liabilities
Total Capital - Total Drawings
Purchase Price - Net Assets
Net Income / Number of Partners
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Goodwill is calculated as the Purchase Price minus the Net Assets of the partnership.
Questions & Step-by-step Solutions
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Q
Q: How is goodwill calculated in a partnership when a new partner is admitted?
Solution:
Goodwill is calculated as the Purchase Price minus the Net Assets of the partnership.
Steps: 4
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Step 1: Determine the Purchase Price that the new partner is willing to pay to join the partnership.
Step 2: Calculate the Net Assets of the partnership. This includes all assets minus all liabilities.
Step 3: Subtract the Net Assets from the Purchase Price to find the Goodwill.
Step 4: The result is the amount of Goodwill that will be recorded in the partnership.
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