Match each goodwill accounting method or transaction scenario on the left with its correct valuation basis or ledger treatment on the right.
- Average Profit MethodValuation based on mean past profits multiplied by an agreed number of years' purchase
- Super Profit MethodValuation based on earnings achieved over and above normal expected profit
- Private Payment of GoodwillNo journal entry is recorded in the partnership books
- Goodwill Written OffDebited to partners' capital accounts in their new profit-sharing ratio
Answer
Average Profit Method matches with valuation based on mean past profits multiplied by an agreed number of years' purchase; Super Profit Method matches with valuation based on earnings achieved over and above normal expected profit; Private Payment of Goodwill matches with no journal entry is recorded in the partnership books; Goodwill Written Off matches with debited to partners' capital accounts in their new profit-sharing ratio.
Each valuation method and accounting scenario is paired directly with its defining rule: Average Profit relies on mean past earnings, Super Profit calculates earnings exceeding normal returns, Private Payment bypasses firm accounts completely, and Goodwill Written Off is debited to partners' capital accounts using the new profit-sharing ratio.
Step-by-Step Solution
Key Concept
Valuation methods and accounting treatments of goodwill in partnership accounts
Estimated Time:1m 0s