Your Questions About Purchased Goodwill Should

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Mark asks…

How should goodwill be recorded?

Hunt company is considering purchasing a company. Estimates of the excess of the value of the individual assets, less liabilities to be assumed, range from 50,000 to 60,000, depending how calculated. Hunt believes it can be purchased for a direct cash outlay of 700,000, which is only 25,000 more than the value of the individual assets less the liabilities that Hunt will assume. Assuming Hunt makes the purchase for 700,000, at what amount should goodwill be recorded? Briefly explain.

financi4 answers:

If I’m reading this correctly, the estimates of the assets less liabilities is 50,000 to 60,000 more than the book value of the assets, which is 700,000 – 25,000 = 675,000. That means the market value of the company is 725,000 to 735,000. And since Hunt is paying only $700,000, no goodwill should be recorded.

John asks…

How much for goodwill when buying a retail outlet?

Could any one tell me how much you would expect to pay for the goodwill when purchasing a retail outlet which has been in business for 25+ years. Also any questions I should be sure to ask when I go to view it. Any suggesstions would be appreciated. Thanks

financi4 answers:

No point asking questions as you will not get honest answers. Just look at the books and make sure they are certified by an accountant, then get your accountant to browse through it also.

In addition check for structural defects to knock down the price. Pay nothing for goodwill as you may loose 50% of the customers. Remember no one will really sell a very a good business except if they were tempted with an amount they couldnt refuse or they were relocating far away.

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