Treatment of Goodwill on Dissolution Goodwill is an intangible asset that represents the non-monetary assets and customer relationships of a partnership firm. W...
Treatment of Goodwill on Dissolution
Goodwill is an intangible asset that represents the non-monetary assets and customer relationships of a partnership firm. When a partnership dissolves, the goodwill of the firm is distributed to its partners in accordance with the partnership agreement.
According to the Partnership Act 1930, goodwill is capable of being distributed even if the partnership has been wound up. However, the distribution of goodwill is subject to certain restrictions.
Firstly, goodwill must be distributed in a fair and equitable manner. It cannot be distributed to a partner who contributed to the formation of the partnership. Secondly, goodwill must be distributed in proportion to the respective interests of the partners.
In the event that a partner is unable to receive their full entitlement of goodwill, the remaining partners may make a lump-sum distribution to that partner.
Goodwill is an important asset for a partnership firm, as it can help to attract new customers and maintain existing customer loyalty. Therefore, it is important for the partners to carefully consider how they distribute goodwill in the dissolution process