GOODWILL

Define Goodwill : It is an intangible asset, it can only exist if the business was brought over and the amount paid was greater than the value of net assets . Goodwill represents the value of reputation when it was brought over.

e.g. Business cost $1 million , Sold at $1.5 million .
Therefore , the difference of $0.5million is known as GOODWILL .
*Reasons for Goodwill ,
1) Business has good reputation
2) Business has good relations with suppliers
3) Located at a strategic location
4) Has a good management and skilled employees
5)etc.

When a business is brought over , partnership will be concered as profit sharing ratio changes accordingly.

WHY change?

Due to :
1) Partner is retiring
2) Partner is devoting lesser time to the business
3) New partner is introduced
4)etc.

*3 cases altogether (1) Change in profit ratio within existing partners (2) Partner Leaving partnership (3) New admission of partner

A Change in Profit Sharing Ratio in existing partners due to :

- partner devoting lesser time to the business due to poor health conditions

-partner have developed more skills, after learning from a new course