|Basic bookkeeping or double entry for taking up or writing off goodwill in the books of account of a business:When goodwill is ACQUIRED:
Debit Goodwill Account
Credit Capital Account
When goodwill is WRITTEN OFF:
Debit Profit or loss or Capital Account
Credit Goodwill Account
When will we need to value or evaluate goodwill?
As goodwill is an intangible asset (invisible and not physical asset), hence it is generally not valued in the books of account of a business.
Situations where valuation of goodwill are necessary:
Salient point on accounting for goodwill:
(a) Goodwill after being valued needs to be credited to the former owner (s) before the change in ownership
(b) Once goodwill which was previously not recorded in the book now been taken up into the books of accounts will affect the NET WORTH of a business
(c) Any gain derives from valuation of goodwill needs to be adjusted to the Capital Accounts of the original owner(s).
( see article on basic bookkeeping treatment or double entry of goodwill)
January 9th, 2011 Comments off
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