When a partner retires from a partnership, goodwill is raised and then immediately written off. How is the goodwill written off?
Question 1 Report
When a partner retires from a partnership, goodwill is raised and then immediately written off. How is the goodwill written off?
Answer Details
The correct answer is by debiting the remaining partners' capital accounts in their new profit sharing ratio.
When a partner retires, goodwill is first raised (debit goodwill, credit all partners' capital accounts in the old profit sharing ratio). This credits the retiring partner with their share of goodwill.
The goodwill is then immediately written off by debiting the remaining partners' capital accounts in their new profit sharing ratio and crediting the goodwill account. This removes the goodwill from the books while ensuring the retiring partner has been fairly compensated for their share.
Download The App On Google Playstore
Everything you need to excel in your exams
