Question

Define the goodwill explain the methods of accounting treatment of goodwill

Answer 1

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Goodwill represents the reputation of a firm. Which provides some extra benefits/profits in the future in comparison to other firms. It builds up when the business has continued for some time. This is treated as intangible assets in accounts. It is not a fictitious asset. Goodwill may be defined as the value of a firm. Let us learn about the treatment of goodwill after a change in PSR.

Accounting treatment of Goodwill

The need for the valuation of goodwill in a firm arises in the following cases:

When the profit-sharing ratio (PSR) of partners is changed;

In case of a new partner is admitted;

In case of death or retirement of a partner;

When the entire business is sold;.

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Answer 2

Goodwill - Meaning and accounting treatment

Explanation:

Meaning of goodwill- Goodwill is a long term, intangible asset which represents the reputation of the company. Goodwill can't be earned overnight  rather it is created by the long term activity of the company which leads to positive impact on society and stakeholders.

Accounting treatment of goodwill- Accounting treatment of goodwill depends on the type of business organization. for eg. in case of partnership when new partner is admitted then value of goodwill is determined and the new partner brings his share of goodwill in cash which is then distributed among existing partners in their sacrificing ratio.

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Accounting treatement of goodwill

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