Match each goodwill transaction or valuation method in partnership accounts with its corresponding accounting treatment or valuation rule.
- Raising goodwill in the partnership booksCredit old partners' capital accounts in their old profit-sharing ratio
- Writing off goodwill in the partnership booksDebit partners' capital accounts in their new profit-sharing ratio
- Valuing goodwill using the Average Profit methodMultiply average profits by the agreed number of years' purchase
Answer
Raising goodwill matches crediting old partners' capital accounts in the old profit-sharing ratio; Writing off goodwill matches debiting partners' capital accounts in the new profit-sharing ratio; Valuing goodwill using the Average Profit method matches multiplying average profits by the agreed number of years' purchase.
Each item correctly matches standard partnership accounting rules: raising goodwill credits old partners in their old profit-sharing ratio, writing off goodwill debits partners in their new profit-sharing ratio, and the average profit valuation method computes goodwill by multiplying average profit by the specified number of years' purchase.
Step-by-Step Solution
Key Concept
Treatment and Valuation of Goodwill in Partnership Accounts