Question

Karan, Nakul and Asha were partners in a firm sharing profits and losses in the ratio 3 : 2 : 1. At the time of admission of a partner, the goodwill of the firm was valued at ₹ 2,00,000. The accountant of the firm passed the entry in the books of accounts and thereafter showed goodwill of ₹ 2,00,000 as an asset in the Balance Sheet. Is he correct in doing so? Why?

Answer 1

The accountant’s statement is incorrect. According to AS-26, only purchased goodwill can be recorded in the books. In this case, goodwill cannot be recognised because it is non-purchased goodwill, and no payment in money or money’s worth has been made for it.