A2 Level - Partnership Goodwill and Dissolution

What is inherent goodwill?

• Goodwill that is purchased during acquisition

• Goodwill generated internally through business reputation

• Goodwill recorded in financial statements

• Goodwill arising from revaluation

Purchased goodwill is recorded in the books when:

• The business experiences high customer loyalty

• The firm is revalued internally

• The firm pays to acquire goodwill from another firm

• Partners change their profit-sharing ratio

Goodwill is NOT recorded when:

• A business is sold

• Partners agree to value goodwill

• Goodwill is inherent

• A partner retires and goodwill is valued

When goodwill is raised and not to be retained in the books, the accounting treatment is to:

• Debit Goodwill and leave it in the books

• Credit Goodwill and transfer to capital accounts

• Raise Goodwill and immediately write it off

• Ignore the goodwill entry

Goodwill is shared between partners:

• According to their capital contributions

• Equally

• In the profit-sharing ratio

• Based on agreement with creditors

When a new partner is admitted, goodwill is typically (2 answers):

• Ignored

• Raised and written off

• Paid by the new partner to old partners

• Transferred to the revaluation account

On change of profit-sharing ratio, goodwill compensation is given by:

• Gaining partner to the sacrificing partner

• Sacrificing partner to the gaining partner

• All partners equally

• Only to the retiring partner

Revaluation account records:

• Capital invested by partners

• Assets and liabilities at original values

• Gains or losses from asset revaluation

• Goodwill premiums only

In retirement of a partner, goodwill is usually:

• Written off among remaining partners

• Given to the retiring partner only

• Ignored entirely

• Transferred to a realisation account

The revaluation account is closed by transferring profit/loss to:

• Appropriation account

• Capital accounts in old profit-sharing ratio

• Current accounts in new ratio

• Goodwill account