Goodwill

Question 1

What is goodwill?

Answer 1

Fair value of reputation, location, customer base, expertise or market position of b

Advantage a new partner get by continuing to carry on a b that has been carried on for some time previously

Question 2

Why does an adjustment need to be made?

Answer 2

New partner benefits from the goodwill built up by previous partners and must be compensated

Question 3

Premium payment?

Answer 3

Pays specific amount for share of goodwill

Question 4

Reasons for payment of goodwill?

Answer 4

Good reputation 
Nr of regular customers
Location
Contracts with reliable suppliers
Possession of brand names

Question 5

Things that will lead to change in ownership of goodwill?

Answer 5

Profit-share ratio changed
Partner retired/dies
New partner

Question 6

Why would profit-sharing ratio change?

Answer 6

Partner not work as much as used to
Skills and ability may change
When partner does more than used to

Question 7

Reasons for admitting new partners?

Answer 7

Firm has grown and need more capital and skills

Replace partners: (retire, die, leave)

Question 8

Method 1?

Answer 8

When new partner admitted to partnership, new partner pay partnership privately. No entry needed in books of partnership

Question 9

Method 2?

Answer 9

If goodwill does not exist in books of old partnership, but must be included in the new partnership.
Goodwill account is opened and will appear in the books of the new partnership

Question 10

Method 3?

Answer 10

If goodwill does not exist in the books of the old partnership, must not be shown in the new partnership
Goodwill account opened and closed off and will not appear in the books of the new partnership