Question

Which method is followed when the new partner does not bring in his share of goodwill in cash.

Options

• By Premium Method

• By Revaluation Method

• Both By Premium Method and By Revaluation Method

• None of these

Answer 1

By Revaluation Method

Explanation:

When the new partner does not bring his portion of goodwill in cash, this method is used. In this case, the goodwill account is increased in the books by crediting the old partners in the old profit-sharing ratio. There are two options for raising a goodwill account in the books of account: 

1. At the time of admittance, no goodwill shows in the books.
2. At the time of admission, goodwill already exists in the books.