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
( It has 5 years of experience in the business )
( No experience )
Benefit from experience
- ⛚ The name of this company is already known to many consumers
- ⛚ Consumers are already familiar with the service and use of these products
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
- ⌛ 2020: profits $40 000
- ⌛ 2021: profits $60 000
- ⌛ 2022: profits $64 000
- ⌛ 2023: profits $58 000
- ⌛ 2024: profits $68 000
the company is previous year profits
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
| date | particular | amount | amount |
|---|---|---|---|
| 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
ans
- invested to purchased 'A ' Existing Restaurant $ 35 000
- net asset of 'A ' Existing Restaurant $ 20 000
goodwill $15 000
example - 2 | decrease
ans
- invested to purchased 'A ' Existing Restaurant $35000
- net asset of 'A ' Existing Restaurant incresss $22000
goodwill $13000
| date | particular | amount | amount |
|---|---|---|---|
| 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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