According to AS 10 Goodwill should be recorded in the books only when some consideration in money or money’s worth has been paid for it. In other words no goodwill account should be raised in case of internally generated goodwill.
When the new partner brings a portion of the required amount of goodwill. In such a case, the amount brought in by the new partner should be shared by the old partners in the sacrificing ratio nd the portion of amount of goodwill not brought in by the new partner thould be adjusted through the capital accounts of partners by debiting new partner’s capital account with the amount and crediting the old partners’ capital accounts in their sacrificing ratio.
Where the new partner privately pays the amount of goodwill to old partners: In this case, no entry should be passed in the books of the firm. The amount to be paid to each partner should be calculated as per the profit-sacrificing ratio.
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