Partnership Goodwill SAQs & Answers
Here are 10 Short Answer Questions (SAQs) related to the concept of Goodwill in Partnership Accounting, along with their answers:
SAQ: 1 What is Goodwill in the context of partnership accounting?
Answer: Goodwill in partnership accounting represents the intangible value of a partnership's reputation, customer base, and other factors that contribute to its earning capacity.
SAQ: 2 How is Goodwill recorded in the books when a new partner is admitted to the partnership?
Answer: When a new partner is admitted, the existing partners' capital accounts are adjusted by the amount of their share of goodwill, which is then credited to the retiring partner's capital account.
SAQ: 3 What happens to Goodwill when a partner retires or leaves the partnership?
Answer: Goodwill is often credited to the retiring partner's capital account and then debited to the remaining partners' capital accounts in their profit-sharing ratio.
SAQ:4 Can Goodwill be revalued after its initial recognition in the partnership accounts?
Answer: Yes, Goodwill can be revalued if there is a change in the partnership's circumstances, such as admission or retirement of a partner. It should be adjusted accordingly.
SAQ: 5 What is the formula to calculate the value of Goodwill?
Answer: Goodwill = (Average Profits × Number of Years of Super Profits) / Capitalization Rate
SAQ: 6 Why is it essential to calculate the value of Goodwill accurately?
Answer: Accurate calculation of Goodwill ensures that partners receive a fair share of the partnership's value when they enter or exit the partnership.
SAQ: 7 How is the retiring partner compensated for their share of Goodwill?
Answer: The retiring partner is compensated through either a lump sum payment or installment payments, as per the partnership agreement.
SAQ: 8 What is the treatment of Goodwill in case of the dissolution of a partnership?
Answer: Goodwill is generally not recorded in the dissolution of a partnership. Instead, any profit or loss arising from the sale of assets is shared among the partners.
SAQ: 9 Can Goodwill be considered an asset that can be sold separately from the partnership?
Answer: Yes, Goodwill can be sold separately, but it's crucial to ensure that all partners agree on its valuation and sale.
SAQ:10 How does the treatment of Goodwill differ in cases of partnership admission and retirement?
Answer: In admission, Goodwill is credited to the existing partners' capital accounts. In retirement, it is credited to the retiring partner's capital account and debited to the remaining partners' accounts.
Please note that these answers are general guidelines, and the specific treatment of Goodwill may vary based on partnership agreements and accounting standards in different regions.
