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Accounting 1
Changes in partnership’s structures
Typical events that requires special
treatment and may change the partnership
structures:
1. Change in profit sharing ratio
2. Admission of new partners
3. Death or retirement of existing partner
Note :
- it uses past result while goodwill is concern about
future prospect , assume past result would affect future
result
- trend of the past result may foretell future expected
profits
2. Average revenue
- just substitute profits with revenue
3. Future profits
- estimate future cash flows generated
- value the stream of cash (value of the PS)
- goodwill = value of the PS – ( A – L )
-
Illustration for Future Profits