Ashok Kumar Malhotra: Your Academic Support System

Answer

In case of Partnership accounts - if the present goodwill is more than the book value of goodwill, the difference should be credited to partner's capital accounts. For example A and B share profit and loss in the ratio of 3:2. The present value of goodwill is Rs.100,000 and the book value is Rs.40,000, then the difference of Rs.60,000 will be credited as follows:

Goodwill  - Debit   - Rs.60,000

  To A's capital - Credit  36,000

  To B's Capital - Credit  24,000

 

However in case of company, if the present value of goodwill is more than the book value, there will be no entry in the books of accounts.

Answer

Purchase of machinery, new or secondhand is a capital expenditure. Any amount paid for freight, repair etc. before the machinery is put to use is also capital expenditure. The repair and other expense like insurance etc after the machine is put to use is revenue expenses.