Explain the need for valuing goodwill in a partnership and show the entries on the admission of a partner.

1. 1 · Define goodwill. Value above identifiable net assets: reputation, customers, location, staff.
2. 2 · Explain when it is valued.
   • Admission of a partner.
   • Retirement or death of a partner.
   • Change in the profit-sharing ratio.
3. 3 · Value it. Average profits or super profits method, with figures.
4. 4 · Create goodwill. Dr Goodwill, Cr old partners in the old ratio.
5. 5 · Write it off if not kept. Dr all partners in the new ratio, Cr Goodwill.
6. 6 · Show the net effect. The sacrificing partner gains; the new partner pays.
7. 7 · Sri Lankan link. Professional firms in Colombo admit partners into an established client base.

Scoring tip: Always show the sacrifice check; it proves the adjustment is right.