CBSE Class 12-commerce Answered

The treatment and calculation of Goodwill is based upon Accounting Standard 26, "Intangible Assets" issued by ICAI. The steps to be followed in case of retirement are simple which requires writing off the existing value of goodwill (if any) in the old ratio and crediting the retiring partner along with the sacrifing partner (if any) with a corresponding debit to gaining partners. This process is based upon adjustment of profit sharing ratio and strictly as per ruling of AS 26 that states in case of change in profit sharing ratio among the partners, goodwill is not to be raised in the books of the firm as no money or money's worth has been paid for it.