Goodwill

Question 1

The true value of goodwll can be established only when

Answer 1

the business is sold, but for vatious reasons of fairness between partners it is valued the best way possible when there is a change to the partnership agreement.

Question 2

If the old partners agree

Answer 2

a new partner can be admitted without paying anything in as capital

Question 3

Goodwill is usually owned by

Answer 3

the partners in the same ratio in which they share profits

Question 4

If there is a change in partnership without adjustments for goodwil

Answer 4

then some partners will make unfair gain while others will quite unfaily lose money

Question 5

If a new partner pays a specific amount for his or her share of the goodwill

Answer 5

then that payment is said to be a premium

Question 6

Define the term goodwill

Answer 6

Goodwill of a business is the advantage which a person gets by continuing to carry on a business which has been carried on for some time previously. It is the difference between the sales value of a business and the value of the new assets in the business.

Question 7

Name the reasons for the payment of goodwill

Answer 7

Good reputation of business
Number of regular (loyal customers)
Experienced and reliable staff/workforce
Location of the business
The quality and accessibility of products or services provided by the business
The contract with reliable suppliers
The possession of brand names or trade mark

Question 8

Do all partnerships have goodwill

Answer 8

no

Question 9

NAme three things that can happen which will lead to a change in ownership of goodwill.

Answer 9

Existing partners decide to change the profot-sharing ratio
Partners retired or died
New partner is admitted

Question 10

Why would the profit-sharing ratio of existing partners change?

Answer 10

A Partner may not work as much as he used to because of old age or ill-health
Skills and ability change
When a partner starts doing much more than he used to do

Question 11

Name two reasons for admitting two partners

Answer 11

Extra partner- firm has grown and need more capital and skills
To replace a partner- if a previous partner retire or die or leave the partnership

Question 12

A going concern will often have goodwill because of the … of the business, the number of …, the … and …, the location of the business and so on

Answer 12

reputation
regular customers
experienced
reliable staff

Question 13

Goodwill is often present, it does not always appear … This is an application of the …

Answer 13

in the books of the business

prudence