Answer to Question #219010 in Accounting for Felicia Lamula

Question

Which one of the following alternatives is correct?

 A. The selling price of the partnership business is determined by the value of its assets.

 B. When recording the valuation adjustments, if the value of a liability is decreased, the valuation account credited with the amount of a decrease.

 C. The fair value of the assets of a partnership is equal to the total equity of a partnership.

 D. An existing goodwill account balance is transferred to the partners’ capital accounts on admission of a new partner.

 E. To ensure that compliance is followed, the financial statements of partnerships must be prepared according to IFRS.

Answer 1

Solution:

The alternative that is correct is D. An existing goodwill account balance is transferred to the partner’s capital accounts on admission of a new partner.

 

The existing goodwill in the books must be written off between the old partners in the old ratio prior to admission of a new partner, by debiting the old partners capital accounts and crediting the goodwill account. Goodwill will not appear in the new balance sheet.