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Hi Mike. I hope you are well. Could you please let me kow what you mean by goodwill ? I learnt it was something else in Financial Accounting but in the partnership lecture you said it’s the name earnt by the partners?
In financial accounting, goodwill is … surely the goodwill associated with the business. It’s the intangible value of customers continuing to return to the firm / company / business
Isn’t that the same as my lectured expression ‘it’s the value of the partnership firm’s name earned / built up / developed by the partners’
Honestly, I don’t believe that it’s a matter for you to get hung up on. Just accept that it’s an intangible asset of a firm and needs to be taken into account in the reckoning of the amount due to a retiring partner (or to be paid for by an incoming partner)
Is that ok for you?
Thankyou very much Mike. What do you mean by 5% interest on Loans and Advances above fixed capital.It is on the 1890 partnership act lecture.
Where we have a partnership, the partners contribute such amounts as capital as the partnership agreement prescribes
At some time in the future, it may be that the firm runs into some unforeseen financial problems.
So one partner could say to the others ‘I’ll lend the firm some money just to get us over this financial problem’
And that’s what happens with no agreement being discussed about interest rates on this new loan
At the year end, as partnership accounts are being prepared, the lending partner says ‘I could do with a preferential allocation of the year’s profits by way of 5% interest on my loan’
The others disagree and a fight ensues. They finish up in Court and the judge asks ‘Was this loan over and above agreed fixed capitals?’ and all the partners agree ‘Yes, it was’
‘Then, according to 1890 Act, that loan carries the entitlement to interest at the rate of 5% per annum’
IF the partners had discussed interest at the time the loan was made and arrived at a rate to be assigned to the loan (whether that rate was zero% through any figure (150%?) then that would have been the rate that was applied
But with no discussion, the 1890 5% rate is applied
OK?
You’re welcome
I’ve just read my previous post and there’s one small addition I should make. If the partners had discussed interest on the loan and NO decision had been reached then, again, 5% would be applied.
The Court would take the view that discussion had taken place and, in the absence of contrary evidence, the statutory rate was implicitly agreed
OK?
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