Theory question 104
Partnership Admission, Retirement and Dissolution4. (a) What is goodwill? (b) Mention six items which must be contained in a Partnership Agreement.
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(a) Goodwill is the value of a business over and above the value of its net assets, arising from its reputation, location, loyal customers, skilled staff and so on, which enables it to earn more than normal profits.
(b) Any six: names of the partners and the firm; nature and place of the business; capital to be contributed by each partner; profit and loss sharing ratio; interest on capital (rate); interest on drawings; partners' salaries; limits on drawings; how goodwill is valued on admission, retirement or death; duration of the partnership and how it may be dissolved; how disputes are settled (arbitration); preparation and audit of accounts; duties and powers of each partner.
Goodwill is an intangible asset; list items of the agreement that settle money matters between partners.