Goodwill adjustment on partner admission
A goodwill adjustment on admission protects or reallocates the existing partners’ interests when a new partner joins. Use the goodwill value and accounting method stated in the question. Where goodwill is raised and then removed from the accounts, credit old partners in the old profit-sharing ratio and charge all partners in the new ratio. This capital adjustment differs from purchased subsidiary goodwill in consolidated financial statements.
Worked example
Goodwill is supplied as $30,000. Old partners A:B share 3:2, so raising it credits A $18,000 and B $12,000. If written off in a new 2:2:1 ratio, debit A $12,000, B $12,000 and C $6,000.
Common mistake
Do not calculate a goodwill valuation method not requested or assume an internally generated goodwill asset remains in the final statement. Follow the specified capital-adjustment method.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | K1 | Direct | July 2027–August 2028 |
Related terms
Also called: Partnership goodwill adjustment