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goodwill on financial statement

Discussion in 'Business Operations' started by grassmasterswilson, Apr 17, 2011.

  1. grassmasterswilson

    grassmasterswilson LawnSite Platinum Member
    from nc
    Messages: 4,920

    Updating my financial statement. I usually have a goodwill line for my business. Anyone do this or something similar? How do you figure it out? I was thinking 10% of gross sales, but that may be too low.
  2. snomaha

    snomaha LawnSite Bronze Member
    from midwest
    Messages: 1,193

    What would someone pay for your business above the value of your balance sheet?
  3. WheatBookkeeping

    WheatBookkeeping LawnSite Member
    Messages: 108

    Goodwill that you put on your good reputation and excellence exhibited by your company is not carried on your Balance Sheet. If that is your meaning, sorry.

    But you can carry, for instance, the amount a new partner pays for an equity share that is over the actual equity value you have accumulated on the books. For instance, If you have $20,000 equity and you are willing to sell a half interest in the company for $12,000, then the Balance Sheet will reflect that both you and the partner will have a $10,000 equity position. The $2000 extra that the new partner paid will be a $2000 Goodwill entry(that you alone own) on the opening Balance Sheet for the next accounting period.

    Sale of assets for an amount greater than fair market value is also a form of “Goodwill” and is carried on the books of the purchaser and must be amortized over 180 months.
  4. snomaha

    snomaha LawnSite Bronze Member
    from midwest
    Messages: 1,193

    Not a bookkeeper - I think we are talking about the same thing and I refrenced the balance sheet to help make a simple analogy.

    If I was explaining goodwill to a 10 year old - Balance sheet shows assets - liabilities = owners equity. If owners equity (net worth) was 100k and someone was willing to buy the business for 150k there would be 50k of goodwill.

    Anything more than that and my brain will start hurting. :)

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