Term: 2nd Term
Week: 4
Class: Senior Secondary School 2
Age: 16 years
Duration: 40 minutes of 2 periods each
Date:
Subject: Financial accounting
Topic:- Partnership account IV
SPECIFIC OBJECTIVES: At the end of the lesson, pupils should be able to
INSTRUCTIONAL TECHNIQUES: Identification, explanation, questions and answers, demonstration, videos from source
INSTRUCTIONAL MATERIALS: Videos, loud speaker, textbook, pictures
INSTRUCTIONAL PROCEDURES
PERIOD 1-2
PRESENTATION |
TEACHER’S ACTIVITY |
STUDENT’S ACTIVITY |
STEP 1 INTRODUCTION |
The teacher reviews the previous lesson on partnership account |
Students pay attention |
STEP 2 EXPLANATION |
She gives reasons for the admission of new partners
|
Students pay attention and participates |
STEP 3 DEMONSTRATION |
She explains goodwill and its valuations. |
Students pay attention and participate |
STEP 4 NOTE TAKING |
The teacher writes a summarized note on the board |
The students copy the note in their books |
NOTE
PARTNERSHIP ACCOUNT
A business firm seeks new partners with business expansion being one of
the driving motives. A new partner can be admitted into the firm with the
consent of all the existing partners, unless otherwise agreed upon.
With the admission of a new partner, there is a reconstitution of the
partnership firm and all the partners get into a new agreement for carrying
out the business of the firm.
The following conditions led to the addition of a new partner:
The following adjustments need to be made at the time of admission of a
new partner
With the admission of a new associate, the partnership enterprise is
restructured and a new agreement is entered into; to carry on the trading
concern of the enterprise. A newly added partner obtains 2 primary rights in
the enterprise:
GOODWILL AND ITS VALUATIONS
Goodwill is an intangible asset associated with the purchase of one
company by another. Specifically, goodwill is recorded in a situation in
which the purchase price is higher than the sum of the fair value of all
visible solid assets and intangible assets purchased in the acquisition and
the liabilities assumed in the process. The value of a company’s brand
name, solid customer base, good customer relations, good employee
relations, and any patents or proprietary technology represent some
examples of goodwill.
Goodwill Meaning in Accounting
Goodwill arises when a company acquires another entire business. The
amount of goodwill is the cost to purchase the business minus the fair
market value of the tangible assets, the intangible assets that can be
identified, and the liabilities obtained in the purchase.
How to Calculate Goodwill
To calculate goodwill, we should take the purchase price of a company and
subtract the fair market value of identifiable assets and liabilities.
Goodwill Formula:
Goodwill = P−(A+L)
where,
P = Purchase price of the target company
A = Fair market value of assets
L = Fair market value of liabilities
Types of Goodwill
There are two distinct types:
For example, suppose you are selling an outstanding product or providing
excellent service consistently. In that case, there is a high chance of an
increase in goodwill.
Goodwill Accounting Treatment
There are five types of accounting treatment of goodwill at the time of
admission of a new partner:
Goodwill Example
To put it in a simple term, a Company named ABC’s assets minus liabilities
is ₹10 crores, and another company purchases the company ABC for ₹15
crores, the premium value following the acquisition is ₹5 crores. This ₹5
crores will be included on the acquirer’s balance sheet as goodwill. It is
also recorded when the purchase price of the target company is higher
than the debt that is assumed.
Factors Affecting Goodwill
The following factors have an impact on the goodwill, which are:
Need for Valuation of Goodwill
Methods of Valuation of Goodwill
The significant methodologies of valuation are mentioned:
Treatment of Goodwill in the Admission of a Partner
Adjustment of Capital and Change in Profit Sharing Ratio Among Existing Partners
Few significant points which require observation during the admission of a new partner are mentioned below:
EVALUATION: 1. Give reasons for the admission of new partners
CLASSWORK: As in evaluation
CONCLUSION: The teacher commends the students positively