Nature of Goodwill and Accounting Treatment

Running Head: COMPANY ACCOUNTING 1
COMPANY ACCOUNTING

Running Head: COMPANY ACCOUNTING
Table of Contents
Question 1...................................................................................................................................................3
Question 2...................................................................................................................................................4
References...................................................................................................................................................6

Running Head: COMPANY ACCOUNTING
Question 1
MEMORANDUM
DATE: 12TH MAY 2019
TO: Directors
FROM: Ms Picos
SUBJECT: Nature of the goodwill and the accounting treatment of the residual value
This memorandum is set up to have a comprehension of nature of the goodwill of the firm Salto
Limited and its treatment in the process of the acquisition. Ordinarily the goodwill is considered
as the elusive intangible resource. The idea of the goodwill came into existence when the
companies are ready to pay the prices that are more accelerated in terms of the fair value of the
other assets of the company. what makes the goodwill can be answered by the analyzing of the
several factors such as the trustworthiness of the customers, their loyalty towards the company,
reliable scope of clients, workforce who is essentially capable, a strong name for itself are a
portion of the significant explanations behind the development of the altruism.
Accounting treatment of the Goodwill in the books of the Purchasing Company to be specific
Patagonia constrained, as it obtained Salto Limited. Assets will be debited, goodwill account will
also be debited and the liabilities as well as the cash in hand will be settled for the same.
Assets A/c Dr.
Goodwill A/c Dr.
To Liabilities
To cash
The whole estimation of the goodwill, will be exposed to the amortization while in a portion of
the cases a residual value can generally be identified that reduces the value of the goodwill.
The outsider has an arrangement with the Patagonia Limited to buy the benefit once the residual
life of the goodwill comes to an end or,
The residual value can be directed by reference to a distinguishable market for that advantage
and that promotion is depended upon to exist around the completion of the advantage's useful
life. Henceforth, the residual value of 50000 is to be accounted for in the books of records and it
will be amortized over the period of the time (Sedki, Posada & Pruske, 2018).