A, B, C and D were partners in a firm sharing profits in the ratio of 4:3:2:1. On 1-1-2015 they admitted E as a new partner for 1:10 share in the profits. E brought Rs 10,000 for his share of goodwill premium which was correctly recorded in the books by the accountant. The accountant showed goodwill at Rs 1,00,000 in the books. Was the accountant correct in doing so? Give reason in support of your answer.
According to AS 26, good will can be shown in books of accounts only when it is purchased. Otherwise, it should be immediately distributed among the old partners in their sacrificing ratio. Hereby showing it in the books of accounts, accountant has violated the law and made wrong accounting entry and hence he cannot be supported.