GOODWILL

RECOGNITION OF GOODWILL

/ Purchased Goodwill
2. DIRECT APPROACH
-if goodwill is purchased as part of business 1. Purchase of “average excess earnings”
combination AVERAGE EARNINGS XXX
NORMAL EARNINGS (XXX)
X Internally Generated Goodwill
AVERAGE EXCESS EARNINGS XXX
-Before pwede mag record ng goodwill kung No. of years excess earnings x X
maganda ang performance ng business at kung may GOODWILL XXX
partnership may bagong iaadmit goodwill method sa 2. Present Value Method
old partner at new partner AVERAGE EARNINGS XXX
NORMAL EARNINGS (XXX)
QUESTION: Bakit di na inallow? AVERAGE EXCESS EARNINGS XXX
ANSWER: kasi di naman sigurado sa presyo No. of years excess earnings @PV x X
GOODWILL XXX
GOODWILL- arises when earnings exceed normal 3. Capitalization of “AVERAGE EXCESS
earnings by reason of good name, capable staff and EARNINGS”
personnel, high credit standing, reputation for fair AVERAGE EARNINGS XXX
dealings, reputation for superior products, favorable Divide by: CAPITALIZATION RATE %
location and a list of regular customers. Goodwill XXX
-kung sakaling yung kinita ay mas mataas sa 4. Capitalization of “AVERAGE EARNINGS”
normal na kinikita dahil sa magandang pangalan, AVERAGE EARNINGS XXX
magagaling na staff, nagbabayad ng utang ng tama, Divide by: CAPITALIZATION RATE %
maganda ang reputasyon kasi kilalang tapa tang Net asset including goodwill XXX
business, maganda ang products, maganda ang Net asset excluding goodwill (XXX)
lokasyon at marami ka ng mga suki. Goodwill XXX

MEASUREMENT OF GOODWILL YUNG VALUE NG NEGOSYO BINIBILI MO NG

MAS MURA IN OPPOSITE NUNG MGA
1. RESIDUAL APPROACH
NAUNA
2. DIRECT APPROACH
NEGATIVE GOODWILL: “GAIN”
IMPAIRMENT OF GOODWILL
Acquisition Price XXX
-NOT amortized because it is systematic
FMV of “NET ASSETS” (XXX)
allocation
GAIN ON BARGAIN PURCHASE XXX
-goodwill has indefinite life

-tested for IMPAIRMENT atleast ANNUALLY and

whenever there is an implication of impairment.

1. RESIDUAL APPROACH
Acquisition Price XXX
FMV of “NET ASSETS” (XXX)
GOODWILL XXX