Goodwill, Financial Accounting

GOODWILL

This is defined as “the difference between the value of a business as a whole and the fair value of its net separable assets”.

Goodwill in practical sense is the advantage that an existing business may have over a newly established business. This advantage may be in the form of profits or revenue that the business generates and customer loyalty. Goodwill may arise due to several factors including:

  • The location of the business
  • The quality of products, services or employees and
  • The marketing

 

In practice, it is normally agreed that many established businesses have created goodwill but unfortunately it is difficult to determine the actual value of goodwill. Therefore, unless goodwill arises from the acquisition of another company, it is normally excluded from the accounts.  For the purpose of accounting for partnerships, goodwill is important in the following three main areas.

  1. When there is a change in the profit sharing ratio
  2. On admission of a new partner
  3. On retirement of a partner
Posted Date: 12/11/2012 6:03:47 AM | Location : United States







Related Discussions:- Goodwill, Assignment Help, Ask Question on Goodwill, Get Answer, Expert's Help, Goodwill Discussions

Write discussion on Goodwill
Your posts are moderated
Related Questions
Describe the following questions:- Q.1 Explain how financial statements assist in the capital allocation process. How are financial statements limited? Which financial statement

As an investor, you are considering buying stock in a relatively new company. Medical Horizons, Inc., has been in existence for 10 years and is now about to go public. The first st

On its December 31, 2010 balance sheet, Emig Corp. reported bonds payable of $6,000,000 and related unamortized bond issue costs of $320,000. The bonds had been issued at par. On J

Question: The following data are obtained from the record of a factory:                                                        £                   £ Sales 4,000 units @ £2

Contribution and indemnity Generally the trustees are jointly and severally liable to the beneficiaries and a trustee sued may claim contribution from the others where although

Interest on Zeroes: Tesla Corporation needs to raise funds to finance a plant expansion, and it has decided to issue 25-year zero coupon bonds to raise the money. The required

Profits in subsidiary company The remaining profits that belong to the holding company should be split between pre-acquisition profits and post acquisition profits. The pre

Illustration of Retirement of a partner A, B and C have been trading as equal partners having capital contributions of £500,000 and £400,000 and £300,000 respectively as at 1st

The only two countries in the world, Alpha and Omega, face the following production possibilities frontiers (all units measured in tons). Alpha's Production PossibilitiesFrontier

Rogers Communication is considering whether to take advantage of historically low Canadian interest rates and lower its cost of debt by refunding its old bonds. Rogers has a $50mil