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Briefly explain three circumstances under which “goodwill” can be recorded in a business firm's books of account

      

Briefly explain three circumstances under which “goodwill” can be recorded in a business firm's books of account.

  

Answers


Mutiso
i) In case of a sole proprietorship business, when another person purchases a sole
proprietorship business and the prospective buyer pays more than the net identifiable assets.
Such goodwill should be recorded.
ii) In case of a business acquisition; This is whereby a company buys another company at a value
in excess of its net identifiable assets. This is called purchased goodwill and should be recorded
in a business/firm?s books of account.
Purchased goodwill = Total price less value of identifiable net assets
[This goodwill is retained in the balance sheet and annually checked for impairment loss which
loss is recognized in the income statement (IFRS)]
iii) In case of a partnership, when a new partner is being admitted to the partnership and pays in
excess of his identifiable net assets contribution
Mutiso answered the question on November 17, 2018 at 11:08


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