Chapter 6, Problem 6.17E

To determine

Concept Introduction:

Good will: Good will is an intangible asset which is either created or purchased. Goodwill can be explained as the name, fame or market impression of the title. Accounting treatment for purchased and self generated good will is different. Goodwill can be recorded with a value, so a purchased good will can be recorded with its value, but the value of self generated good will is unascertainable, hence the self generated good will is not recorded in the books.

Return on Investment (ROI): The return on investment is a profitability ratio that measures the percentage of profit earned on the investment made. It is calculated with the help of following formula:

  $\text{Return on investment = }\frac{\text{Net Operating Income}}{\text{Average operating assets}}$

Requirement-a:

To Indicate:

The decision to pay more for purchase of the restaurant

To determine

Concept Introduction:

Good will: Good will is an intangible asset which is either created or purchased. Goodwill can be explained as the name, fame or market impression of the title. Accounting treatment for purchased and self generated good will is different. Goodwill can be recorded with a value, so a purchased good will can be recorded with its value, but the value of self generated good will is unascertainable, hence the self generated good will is not recorded in the books.

Return on Investment (ROI): The return on investment is a profitability ratio that measures the percentage of profit earned on the investment made. It is calculated with the help of following formula:

  $\text{Return on investment = }\frac{\text{Net Operating Income}}{\text{Average operating assets}}$

Requirement-b:

To Indicate:

The accounts titles to record the cost of the restaurant