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Goodwill

Adding a goodwill valuation to the balance sheet

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 A  company director has just asked if he can value his company and add goodwill to the balance sheet to increase the value of the company. The company made a £9800 profit in 2019 and an £8000 loss in 2018 but has a turnover of £420k. He was mentioning a figure of £200k for goodwill i'm not sure this could be justified. Is valuing your own goodwill allowed? If so does the double entry go to a valuation reserve? If allowable what sort of figure would be acceptable, i'm estimating a much lower £10k

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RLI
By lionofludesch
02nd Jul 2020 16:24

He'd need a new accountant if he asked me to do that.

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Replying to lionofludesch:
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By J accountant
02nd Jul 2020 16:28

i was thinking that only purchased goodwill should be shown and therefore this wouldn't be acceptable.............is this correct?

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By paul.benny
02nd Jul 2020 16:30

It is not permitted to value internally-generated goodwill

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By Anonymous.
02nd Jul 2020 16:36

J accountant wrote:

 but has a turnover of £420k.

The saying is: "turnover is vanity, profit is sanity, cash is king".

Why does he want to increase his balance sheet assets?

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Locutus of Borg
By Locutus
02nd Jul 2020 16:41

J accountant wrote:

A company director has just asked if he can value his company and add goodwill to the balance sheet

The answer to the question is no. Purchased goodwill only.

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By SXGuy
02nd Jul 2020 16:46

If it was allowed we'd all do it.

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By ireallyshouldknowthisbut
02nd Jul 2020 17:05

You client will now ask "but can I open a new company, and buy the business and goodwill from the old company?"

Be prepared for that one before they ask.

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By Paul Crowley
02nd Jul 2020 18:00

Any reason why client thinks a good idea?
Are "dividends" perchance a bit to high?
What would be the double entry?

Not one responder on client's side yet
And there will not be one responder on client's side for a very good reason

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By CW2012
06th Jul 2020 18:03

I had a client once who increased his company's value by issuing 1,000,000 shares to himself and his business partner as he thought a purchaser would just buy the share capital, when I debited the DLA's and asked that £1,000,000 was paid into the company bank account he turned a funny colour and never interfered in the accounts again.

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