Good will treatment

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shanavas

28 Points Posted on 19 May 2013

Dear Sir

One my cleint started a jewellery showroom as a private limited compnay with promoters A & B. The company paid 15 laks to the promoter A for using his brand name, which is already have good reputation in jewellery market, and Promoer A is having jewellery outlets of 10 with that name. How can we account the amount paid in the newly opened private limited company, as purchased goodwill......If yest, in that case, can it capitalize and amortize over certain period or be charged to the expense of the year it incurred??

Please clarify

Thanks

Shanvas

Replies (5)

Nishant

Student CA Final

38 Points Posted on 19 May 2013

Shanavas

As per As-26 This is Purchased Goodwill and it should be Capitalised and it must be amortised in ratio of Future economic benefit .

If FEB can not be ascertained then in by SLM method in 5years it must be amortised...
period of 5 year can be lower if justifed...

This above treatment is about Shown Goodwill in B/S and amortise in SP&L.

But let me know if this is case of Brand Purchase then the same treatment as written above but amortisation period can be 10 years..
let see other members suggestion..

shanavas

28 Points Posted on 19 May 2013

Thank you for the message.

The cleint has paid Rs. 1.5 mn to the other party only to use their brand name.........

Regards

Shanavas

CA SUDIPTA SINHA

Commerce Coaching- Accounts Cost FM

372 Points Posted on 19 May 2013

As per AS 26 an intangible asset must fulfill three basic conditions:

1) it must be identifiable;

2) the enterprise should control over the resource; and

3) future economic benefit should flow to the enterprise.

Therefore, right to use the brand name should be capitalized as separate intangible asset and not as purchased goodwill and it should be written off within a maximum period of 10 years.