CA Raha Sk
(Professional)
(150 Points)
Replied 26 November 2011
Pari , Study in Institute Material Abt Goodwill dr prensented in crystal clear manner to understand.... In short Goodwill is the REPUTATION OF THE FIRM.....xisting patners do all d hardwork to make the profit bussiness so the new patner pay for their hardwork and sacrifice made by patners for losing dr profit and also outgoing patner also get goodwill for his hardwork of all d years n sacrifing.....They r so many methods to calculate goodwiill IT DEPENDS UPON THE PATNERSHIP DEED.....EXITING PATNERS A/C SHOULD BE CREDITED BCOZ DR R RECEIVING IT AND NEW PATNERS A/C SHOULD BE DEBITED.....
CA Raha Sk
(Professional)
(150 Points)
Replied 26 November 2011
The term was originally used in accounting to express the intangible but quantifiable "prudent value" of an ongoing business....TO BE Fair i dunno abt premium of goodwill
Sanket
(!..Live to Give..!)
(16427 Points)
Replied 26 November 2011
Accounting treatment of goodwill at the time of admission of a partner is classified in four parts:
(1) When new partner pays amount of goodwill privately: In this case no entry will be passed in the books of the firm.
(2) When new partner brings his share of goodwill in Cash or kind. In this case the following entries are passed:
Cash / Bank/ Assets A/c Dr.
To New Partner’s Capital A/c (for amount of capital)
To Premium A/c (for amount of goodwill)
Premium A/c Dr.
To Old Partner’s Capital A/cs
Old Partner’s Capital A/c Dr.
To Cash/Bank A/c
3) When new partner does not bring his share of goodwill in cash.
In this case new partner’s share of goodwill is charged to his capital account and t/f to old partner’s capital accounts in their sacrificing ratio. Entries for this will be:
(i) For amount of capital brought in by new partner
Cash / Bank/ Assets A/c Dr.
To New Partner’s Capital A/c
(ii) For new partner’s share of goodwill credited to old partner’s capital accounts in their sacrificing ratio
New Partner’s Capital A/c Dr.
To Old Partner’s Capital A/cs
(iii) When old partners withdraw the amount of goodwill.
Old Partner’s Capital A/c Dr.
To Cash/Bank A/c
4) When new partner brings only a part of his share of goodwill in cash or kind.
In this case amount brought in by new partner as his share of goodwill t/f to old partner’s capital accounts in their sacrificing ratio and the amount that is not brought in by him is charged to his capital account and is also t/f to old partner’s capital accounts in their sacrificing ratio. Entries will be in following manner:
Cash / Bank/ Assets A/c Dr.
To New Partner’s Capital A/c (Amount of Capital)
To Premium A/c (Amount of Goodwill brought in by new partner)
Premium A/c Dr.
To Old Partner’s Capital A/cs
New Partner’s Capital A/c Dr.
To Old Partner’s Capital A/cs...
Sanket
(!..Live to Give..!)
(16427 Points)
Replied 26 November 2011
Methods of Goodwill
1. Average Profits Method:
Under this metod goodwill is calculated on the basis of the average of some agreed number of past years. The average is then multiplied by the agreed number of years. This is the simplest and the most commonly used method of the valuation of goodwill.
Goodwill = Average Profits X Number of years of Puchase
Before calculating the average profits the following adjustments should be made in the profits of the firm:
a. Any abnormal profits shoulld be deducted from the net profits of that year.
b. Any abnormal loss should be added back to the nat profits of that year.
c. Non operating incomes eg. income from investments etc should be deducted from the net profits of that year.
2. Super profits method:
Under this method Goodwill is calculated on the basis of Super Profits i.e. the excess of actual profits over the average profits. For examplle if the normal rate of return in a particular type of business is 20% and your investment in the business is Rs.10,00,000 then your normal profits should be Rs.2,00,000. But if you earned a net profit of Rs. 2,30,000 then Rs.2,30,000 - Rs.2,00,000= Rs.30,000 are your super profits. For calculating Goodwill Super Profits are multiplied by the number of years of purchase.
For calculating Goodwill:-
i) Normal Profits = Capital Invested X Normal rate of return/100
ii) Super Profits = Actual Profits - Normal Profits
iii) Goodwill = Super Profits x No. of years purchased
3. Capitalisation Method:
There are two ways of calculating Goodwill under this method:
(i) Capitalisation of Average Profits Method
(ii) Capitalisation of Super Profits Method
(i) Capitalisation of Average Profits Method:
Under this method we calculate the average profits and then assess the capital needed for earning such average profits on the basis of normal rate of return. Such capital is called capitalised value of average profits. The formula is:-
Capitalised Value of Average Profits = Average Profits X (100 / Normal Rate of Return)
Capital Employed = Assets - Liabilities
Goodwill = Capitalised Value of Average Profits - Capital Employed
(ii) Capitalisation of Super Profits:
Under this method first of all we calculate the Super Profits and then calculate the capital needed for earning such super profits on the basis of normal rate of return. This Capital is the value of our Goodwill . The formula is:-
Goddwill = Super Profits X (100/ Normal Rate of Return)
Sanket
(!..Live to Give..!)
(16427 Points)
Replied 26 November 2011
You are welcome.... There is no troubling... Its ok..
Anuj Jain
(pqr)
(94 Points)
Replied 28 November 2012
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