3rd Method
Capitalization method
In this method , we calculate capital employed with following formula
Capital employed = average profit or normal profit X 100 / Rate
Goodwill = capital employed – Net Assets
4th Method
Annuity Method
In this method we first of all calculate annuity . Annuity means annual value . These day , accountant are using different annuity tables for calculating annuity , after this they can easy calculate goodwill with following formula .
Goodwill = Super profit X Annuity
Accounting treatment of goodwill at the time of admission
When a new partner enters in partnership firm , the old partner sacrifices his share for him , so it is the duty of new partner to give goodwill in cash or in any other way to old partner . There are following method with this new partner give his share of goodwill to old partners .
1st method Private distribution of goodwill
Under this method , new partner gives his share of goodwill to old partners personally . So there is no need to record it to the books of firm . No journal entry will pass .
2nd method Goodwill is given in cash form by new partner Under this method , old partner bring his share of goodwill in cash form in