Question

When the new partner is admitted goodwill can be treated in how many ways?

Options

• By Premium Method

• By Revaluation Method

• Both By Premium Method and By Revaluation Method.

• None of these

Answer 1

Both By Premium Method and By Revaluation Method.

Explanation:

The entering partner who buys his share of the firm's profits from the current partners pays a bonus to compensate them for losing their share of the super-profits. It's known as his fair share of goodwill (also called a premium). Alternatively, he may agree that the goodwill account is increased in the firm's books by crediting the old partners. When a new partner is accepted, goodwill might be handled in one of two ways:

1. By Premium Method
2. By Revaluation Method