Purchase From Existing Partners
When a new partner buys her interest from the old partners (doesn't
invest into the partnership but makes payment directly to the old partners),
the implied goodwill is determined by considering the amount the new partner
is paying. For example, if the new partner is paying $50,000 for
a 50% interest, the total implied value is $100,000 (.50X = 50,000),
If the old partners capital accounts equal only $90,000 in total, implied
good will is $10,000.
Entry to record the goodwill and/or revalue assets is:
| Goodwill (or identifiable net assets) | 10,000 | |
| Old Partners' Capital | 10,000 |
Investing into an Existing Partnership with Goodwill to New Partner
(Use old partners' capital in calculating amount of goodwill.)
When the new partner is not paying enough for the percent of the partnership
interest, the goodwill goes to the new partner's capital account.
That is, under the bonus approach, the credit to the new partner capital
account would be more than the investment. For example, if the partner
invests $50,000 into the partnership for a 50% interest and the old partners'
capital accounts equal a total of $60,000, the new partner receives goodwill.
The old partners have a 50% ownership with capital of $60,000 which implies
a total value of $120,000 (.50X = 60,000). So if the total value
is $120,000 and the old capital of $60,000 plus the new investment of $50,000
only total to $110,000, the difference between the $120,000 and the $110,000
equals goodwill of $10,000.
Entry for admission of new partner:
| Cash | 50,000 | |
| Goodwill | 10,000 | |
| New Partner's Capital | 60,000 |
Investing into an Existing Partnership with Goodwill to Old Partners
(Use new partner's investment in calculating amount of goodwill.)
When the new partner is paying too much for the percent of the partnership
interest, the goodwill goes to the old partners' capital accounts.
That is, under the bonus approach, the credit to the new partner capital
account would be for less than the investment. For example, if the
partner invests $50,000 into the partnership for a 50% interest and the
old partners capital accounts equal a total of $40,000, the old partners
receive goodwill. The new partner is paying $50,000 for a 50% interest
which implies a total value of $100,000 (.50X = 50,000). So if the
total value is $100,000 and the old capital of $40,000 plus the new investment
of $50,000 only total to $90,000, the difference between the $100,000 and
the $90,000 equals goodwill of $10,000.
Entry for admission of new partner:
| Cash | 50,000 | |
| New Partner's Capital | 50,000 |
Entry to record goodwill:
| Goodwill | 10,000 | |
| Old Partners' Capital | 10,000 |