Commerce Exam > Commerce Videos > Treatment of Goodwill
Treatment of Goodwill Video Lecture - Commerce
FAQs on Treatment of Goodwill Video Lecture - Commerce
| 1. What is goodwill in commerce? |  |
Ans. Goodwill in commerce refers to the intangible asset that represents the reputation and value of a business beyond its tangible assets. It includes factors such as customer loyalty, brand recognition, and positive business relationships that contribute to the overall value of a company.
| 2. How is goodwill treated in commerce? | |
Ans. Goodwill in commerce is treated as an intangible asset on a company's balance sheet. It is recorded when a company acquires another business for a price higher than the fair market value of its identifiable assets. Goodwill is not amortized but is subject to an annual impairment test to determine if its value has decreased.
| 3. How is goodwill measured in commerce? | |
Ans. Goodwill in commerce is measured as the difference between the purchase price of a business and the fair market value of its identifiable net assets. The fair market value is determined by assessing the value of the business's tangible assets, liabilities, and intangible assets. This measurement helps determine the value of goodwill.
| 4. How is goodwill impairment recognized in commerce? | |
Ans. Goodwill impairment in commerce is recognized when the carrying value of goodwill exceeds its fair value. Fair value is determined by estimating the future cash flows generated by the business and discounting them to their present value. If the fair value is lower than the carrying value, an impairment loss is recognized on the company's financial statements.
| 5. How does goodwill affect a company's financial performance in commerce? | |
Ans. Goodwill in commerce can affect a company's financial performance by enhancing its reputation and market position. A strong goodwill can attract more customers, increase brand loyalty, and lead to higher sales and profits. However, if goodwill becomes impaired, it can negatively impact a company's financial performance by reducing its overall value.
Text Transcript from Video
good well when a partner retires
he will no longer get the benefits of
the future profits of the partnership
firm he has helped to build the goodwill
which is not reflected in the balance
sheet like we mentioned before if
partner C retires today and they after
if the business was to be liquidated the
partnership firm would receive some
money towards goodwill - which is not
there in the balance sheet the retiring
partner should actually have a share in
this amount of goodwill
so when a partner retires his share of
goodwill is credited to his account his
share of goodwill may have to be valued
up to that date and his share in that
goodwill is credited to his account let
us consider a couple of examples if we
credit the retiring partners capital
account what do we debit we debit the
remaining partners we've debits the
gaining partners capital accounts in
there gaining ratio gaining partners
capital accounts in there gaining ratio
let's take an example a B and C are
equal partners a retires goodwill is
valued at three lakh does not appear in
the balance sheet what is the entry for
goodwill adjustment who retires he
retires what is his share of goodwill
one third of three lakh is share of
goodwill is equal to one third of three
lakh equal to one lakh right so this
amount needs to be credited
is a conscience is retiring what are the
accounts which would be debited B and
C's accounts would be debited what is
their gaining ratio the ratio between
them is the same it was equal before it
is equal now therefore they will also
bear this equally therefore the entry
will be B is a convey is capital account
debit C is capital account debit to
retiring partner that is is capital
amount which will go to ace capital is a
share of goodwill which is one lag and B
and C will bear this equally or 50,000
50,000 this would be the accounting
entry for adjustment of goodwill on
retirement of the part now another
example a B and C are partners share
profits equally a retires goodwill
appearing in the books is three lag
appearing in the books at rupees three
lab is actually valued at six lengths a
will get credit off what are the options
here a 2 lakhs B 3 lakh C 50,000 and D 1
lakh goodwill is already appearing in
the books an amount of goodwill if it
appears in the goods that amount is
already reflected in the capital
accounts of the partners as is the value
of all the assets and liabilities which
are already existing in the balance
sheet so we don't need to pass any
adjustment entry with respect to this 3
lakh however it is valued at six lag
which means that is an amount of free
lag which is not reflected in the
balance sheet what is a share in that is
share in that is one third of three lakh
which is three lakh six lakh - three
lakh that is equal to one so a will get
a credit of 1 lakh a will get a credit
of rupees
black and B and C's accounts would be
debited with fifty thousand and fifty
thousand each fifty thousand each oak
he will no longer get the benefits of
the future profits of the partnership
firm he has helped to build the goodwill
which is not reflected in the balance
sheet like we mentioned before if
partner C retires today and they after
if the business was to be liquidated the
partnership firm would receive some
money towards goodwill - which is not
there in the balance sheet the retiring
partner should actually have a share in
this amount of goodwill
so when a partner retires his share of
goodwill is credited to his account his
share of goodwill may have to be valued
up to that date and his share in that
goodwill is credited to his account let
us consider a couple of examples if we
credit the retiring partners capital
account what do we debit we debit the
remaining partners we've debits the
gaining partners capital accounts in
there gaining ratio gaining partners
capital accounts in there gaining ratio
let's take an example a B and C are
equal partners a retires goodwill is
valued at three lakh does not appear in
the balance sheet what is the entry for
goodwill adjustment who retires he
retires what is his share of goodwill
one third of three lakh is share of
goodwill is equal to one third of three
lakh equal to one lakh right so this
amount needs to be credited
is a conscience is retiring what are the
accounts which would be debited B and
C's accounts would be debited what is
their gaining ratio the ratio between
them is the same it was equal before it
is equal now therefore they will also
bear this equally therefore the entry
will be B is a convey is capital account
debit C is capital account debit to
retiring partner that is is capital
amount which will go to ace capital is a
share of goodwill which is one lag and B
and C will bear this equally or 50,000
50,000 this would be the accounting
entry for adjustment of goodwill on
retirement of the part now another
example a B and C are partners share
profits equally a retires goodwill
appearing in the books is three lag
appearing in the books at rupees three
lab is actually valued at six lengths a
will get credit off what are the options
here a 2 lakhs B 3 lakh C 50,000 and D 1
lakh goodwill is already appearing in
the books an amount of goodwill if it
appears in the goods that amount is
already reflected in the capital
accounts of the partners as is the value
of all the assets and liabilities which
are already existing in the balance
sheet so we don't need to pass any
adjustment entry with respect to this 3
lakh however it is valued at six lag
which means that is an amount of free
lag which is not reflected in the
balance sheet what is a share in that is
share in that is one third of three lakh
which is three lakh six lakh - three
lakh that is equal to one so a will get
a credit of 1 lakh a will get a credit
of rupees
black and B and C's accounts would be
debited with fifty thousand and fifty
thousand each fifty thousand each oak
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Nov 15, 2024 Last updated |
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