if formation expenses written off against Goodwill then what is the journal entry for it
Answers
Answer:
Explanation:
Goodwill is an intangible asset associated with the purchase of one company by another. Specifically, goodwill is recorded in a situation in which the purchase price is higher than the sum of the fair value of all identifiable tangible and intangible assets purchased in the acquisition and the liabilities assumed in the process. The value of a company’s brand name, solid customer base, good customer relations, good employee relations, and any patents or proprietary technology represent some examples of goodwill.
KEY TAKEAWAYS
Calculated by taking the purchase price of a company and subtracting the fair market value of identifiable assets and liabilities.
Companies are required to evaluate the value of goodwill on their financial statements at least once a year and record any impairments.
Goodwill is very different from other intangible assets, having an indefinite life, while other intangible assets have a definite useful life.
The Formula for Goodwill Is
\begin{aligned} &\text{Goodwill} = P - (A + L)\\ &\textbf{where:}\\ &\bullet P = \text{Purchase price of the target company}\\ &\bullet A = \text{Fair market value of assets}\\ &\bullet L = \text{Fair market value of liabilities} \end{aligned}
Goodwill=P−(A+L)
where:
∙P=Purchase price of the target company
∙A=Fair market value of assets
∙L=Fair market value of liabilities
Journal Entry for Preliminary Expenses & Written Off. Company-A incurs a total of 100K as expenses before the start of business operations, the below entry will be used to book all such expenses. The rest of the balance is shown in the balance sheet temporarily.