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Partnership:
Treatment of Goodwill
Reference：Chapter 5
(p. 89)
1
A Definition of Goodwill (商譽)
Goodwill is the excess of the purchase price of a
business as a going concern over the value of all
separable net assets.
Goodwill = Purchase price of - Value of all
the business
separable assets
2
B
Nature of Goodwill
Goodwill is a kind of Intangible Assets.
Intangible assets are those assets without a
physical substance.
Goodwill may be generated by good reputation;
experienced and efficient employees and
management; good relationship with suppliers
and customers……
3
c
Valuation of Goodwill
1 Average sales method (平均銷貨法)
e.g.：Goodwill is three times the average yearly sales for the
last two years. The sales for the last two years are $1,000 and
$2,000。
Goodwill = [($1000+$2000)/2]X3 = $4500
2 Annual fees method (平均服務費法)
e.g.：Goodwill is three times the average annual fees received
in the last two years. The annual fees for the last two years are
$2,000 and $2,500。
Goodwill = [($2000+$2500)/2]X3 = $6750
4
3 Average net profits method (平均純利法)
e.g.：Goodwill is five times the average net profits of the
past three years. The net profits for the last three years
are $10,000, $15,000 and $20,000。
Goodwill = [($10000+$15000+$20000)/3]X5 = $75000
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D Accounting Treatment
of Goodwill
1. Goodwill A/C to be opened / maintained
Dr. Goodwill (increasing amount)
Cr. Capital – A (Using old profit ratio)
–B
e.g. Goodwill is valued at $1,200. The profit
sharing ratios of A and B is 2:1.
Ans. Dr. Goodwill
Cr. Capital – A
–B
Ex. 5.6. (a) (p. 98)
1,200
800
400
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2. No Goodwill A/C to be opened /
maintained
e.g. Goodwill is valued at $2,000. The old profit sharing ratio
of A and B is 1:1 and the new profit sharing ratio is 3:1.
•Preparing a Goodwill adjustment table
•Draw up the journal entry according the table
Old Ratio
New Ratio
Gain or Loss
Adjustment
A (½) $1000
A (¾) $1500
Gain $500
Dr. Capital:A $500
B (½) $1000
B (¼) $500
Loss $500
Cr. Capital:B $500
Dr. Capital – A
Cr. Capital – B
500
500
Ex. 5.6. (b)
(p. 98) 7
Assignment:
Ex. 5.7X (p.98)
8