QUESTION 2 Shatta Whales has been in trading on her own account for many years. She decides to admit Shatta Bindles as a partner. For the purpose of ascertaining the amount which Shatta Bindles should pay for her share of goodwill, it was agreed that the total goodwill should be valued at three year's purchase of the simple average profits of the past five years. The profits had been as follows: Year Profit (GHS) 2014 2,819 2015 2,164 2016 3,310 2017 3,197 2018 2,985 Required: With reference to the above information; (a) Outline the steps in determining goodwill based on the 'Purchase of number of years' average net profit method', with specific emphasis on the simple average method (b) Ascertain the goodwill payable by Shatta Bindles based on the steps outlined in (a) above (c) Outline three (3) factors that contribute to goodwill.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
Question
QUESTION 2
Shatta Whales has been in trading on her own account for many years. She decides to admit Shatta
Bindles as a partner. For the purpose of ascertaining the amount which Shatta Bindles should pay for her
share of goodwill, it was agreed that the total goodwill should be valued at three year's purchase of the
simple average profits of the past five years. The profits had been as follows:
Year
Profit (GHS)
2014
2,819
2015
2,164
2016
3,310
2017
3,197
2018
2,985
Required:
With reference to the above information;
(a) Outline the steps in determining goodwill based on the 'Purchase of number of years' average
net profit method', with specific emphasis on the simple average method
(b) Ascertain the goodwill payable by Shatta Bindles based on the steps outlined in (a) above
(c) Outline three (3) factors that contribute to goodwill.
(d) Under the Incorporated Private Partnership Act 152, certain relationships shall not of themselves
create a partnership. Identify three (3) of such relationships.
(e) Distinguish between internally generated goodwill and purchased goodwill and explain how
each of them may be treated in line with standard accounting principles.
(f) Outline four (4) events that can cause the cessation of a partner's membership of a firm.
Transcribed Image Text:QUESTION 2 Shatta Whales has been in trading on her own account for many years. She decides to admit Shatta Bindles as a partner. For the purpose of ascertaining the amount which Shatta Bindles should pay for her share of goodwill, it was agreed that the total goodwill should be valued at three year's purchase of the simple average profits of the past five years. The profits had been as follows: Year Profit (GHS) 2014 2,819 2015 2,164 2016 3,310 2017 3,197 2018 2,985 Required: With reference to the above information; (a) Outline the steps in determining goodwill based on the 'Purchase of number of years' average net profit method', with specific emphasis on the simple average method (b) Ascertain the goodwill payable by Shatta Bindles based on the steps outlined in (a) above (c) Outline three (3) factors that contribute to goodwill. (d) Under the Incorporated Private Partnership Act 152, certain relationships shall not of themselves create a partnership. Identify three (3) of such relationships. (e) Distinguish between internally generated goodwill and purchased goodwill and explain how each of them may be treated in line with standard accounting principles. (f) Outline four (4) events that can cause the cessation of a partner's membership of a firm.
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps

Blurred answer
Knowledge Booster
Goodwill Valuation
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education