a) What is Goodwill? b) Conditions under which Goodwill is valued in a Partnership c) Contents of a partnership agreement

Answer Details

(a) What is Goodwill?

Goodwill is the value of a business's good name, reputation, established customer connections and earning capacity over and above the value of its net tangible (identifiable) assets. It is an intangible asset that arises because a going business is worth more than the mere sum of its separable assets.

(b) Conditions under which goodwill is valued in a partnership

• On the admission of a new partner.
• On the retirement or death of a partner.
• On a change in the profit-sharing ratio of existing partners.
• On the dissolution or sale of the partnership business.
• On the amalgamation of the firm with another, or its conversion into a company.

(c) Contents of a partnership agreement (deed)

• Name of the firm and the names and addresses of the partners.
• Nature and place of the business.
• Amount of capital to be contributed by each partner.
• The profit- and loss-sharing ratio.
• Rate of interest on capital and on drawings.
• Salaries, commission or allowances payable to partners.
• Rights, duties and powers of each partner.
• Procedure for admission, retirement, death and dissolution.
• Method of valuing goodwill.
• Keeping and auditing of accounts, and settlement of disputes (arbitration).