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what is meaning of goodwill |how to valuate and recorded

what is goodwill    ?

The word goodwill refers to the relationship between customer and company

        The value placed on the goodwill by the customer will increase or decrease depending on the performance of the company

?    Why do you need to calculate goodwill ?

    ✏   Goodwill adds value to the company when selling the company, so it should be taken into account

the example of the new restaurant and existing restaurant

company- makingaccount
( It has 5 years of experience in the business )
company- makingaccount
( No experience )

Benefit from experience

Through this experience 'A ' Existing Restaurant will be able to sell more products than the new Restaurant and make a profits

We can learn from this example that experience is an added value to a company

?    How to calculate goodwill    ?

There are many methods to valuate a goodwill & Read in detail about the purpose of each method

example of average Profit

The company Is expect in the future Year Profits   3

total profits / number of year = average profits * no of year purchase = goodwill

290000/5= 58000 * 3 =174000

ans    goodwill    : 174000

?    How to record goodwill    ?

  • This goodwil worth $ 174000 should not be recorded in 'A ' Existing Restaurant account Because  you only have to recorded the account if you purchase the goodwil  

  • Only if New Company buys to 'A ' Existing Restaurant will the goodwill be recorded in the account

only holding company will recorded goodwill by subsidery company

goodwill A/C D 174000
to bank A/C 174000
goodwill calculated

the value of goodwill changed according to the subsidery company is net asset

example - 1


  • invested to purchased 'A ' Existing Restaurant $ 35 000
  • net asset of 'A ' Existing Restaurant $ 20 000

goodwill $15 000

example - 2 | decrease


  • invested to purchased 'A ' Existing Restaurant $35000
  • net asset of 'A ' Existing Restaurant incresss $22000

goodwill $13000

bank A/C D 2000
to goodwill A/C 2000
goodwill valuated (decrease)

Want to know more about the goodwil. ?    YES


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