What accounting entries for a transfer of goodwill?

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The transfer of a goodwill generates specific entries, which are called accounting entries. These accounting entries are operations that consist in transcribing a financial or commercial flow into the company’s accounts.

But how to account for the sale of a goodwill? Legal start explains everything to you.

MINI-SUMMARY:

Transfer of a goodwill and accounting: what do you need to know?

What are the accounting entries for the transfer of a goodwill?

How to account for the depreciation of a goodwill?

What is the impairment test of ftrade waves?

Transfer of a goodwill and accounting: what do you need to know?

In accounting, goodwill is made up of tangible fixed assets (physical assets) and intangible fixed assets (assets ithout physical substance), which contribute to the maintenance of the company’s activity.

Goodwill is the sum of several elements, such as equipment, inventory, brand, leasehold rights and goodwill ( the latter being defined by the Accounting Standards Authority as “composed mainly of customers, of goodwill, of the sign, of the commercial name and more broadly of market shares”). All these elements must be taken into account in the accounting entries.

By For example, it is necessary to make the difference between inventories and intangible and tangible fixed assets, and the total value of the goodwill.

The  sale of a goodwill also involves debiting deductible VAT on fixed assets and VAT on other goods and services. The costs of fixed assets suppliers, commissions and brokerage, fees, and deeds and litigation must, on the other hand, be credited to the accounts.

What are the accounting entries for the transfer of a goodwill?

Debit of accounts  :

Account Credit  :

Class 3 of the “Stocks ” PCG for the amount of stocks associated with the goodwill;

Class 20 “Intangible assets” for the amount of intangible assets;

Class 21“Tangible fixed assets” for the amount of installations and equipment;

Class 207 “Goodwill” for the amount resulting from the difference between the total goodwill and the total of the aforementioned elements;

Class 44566 “VAT deductible on other goods and services”;

Class 44562 “Deductible VAT on fixed assets”.

Class 404 “Providers of fixed assets”;

Class 6222 “Commissions and brokerage on sales”;

Class 6226 “Fees” and;

Class 6227 “Legal and litigation costs”.

How to account for the depreciation of a goodwill?

The expression “transfer of goodwill” often suggests that it is a classic acquisition. Nevertheless, the goodwill may be subject to depreciation, that is to say a fall in its value. In this case, the operation to be carried out will be a business takeover and not a purchase. The accounting entry of a transfer of goodwill which is the subject of a depreciation is, in this respect, slightly different from that of a traditional acquisition of goodwill.

First of all, it should be noted that the depreciation of a goodwill means that the good has lost its value . To record the depreciation of goodwill, the operations to be carried out therefore consist of debiting account 68161 “Allocations for depreciation of intangible fixed assets” and crediting account 2907 “Depreciation of goodwill”.

Since January 1, 2016, a regulation transposing the European directive of June 26, 2013 has amended the provisions of the General Chart of Accounts relating to the amortization and depreciation of fixed, tangible and intangible assets and in particular goodwill.

The goodwill is now presumed to have an unlimited lifespan. Consequently, the amortization of goodwill is only possible on rare occasions, and is of little interest. The smallest companies whose activity is limited in time can nevertheless amortize their goodwill over 10 years.

An impairment test must also be carried out at least once per fiscal year for goodwill whose useful life is presumed to be unlimited, even without any indication of impairment.

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What is the goodwill impairment test?

Every year, any goodwill must now be subject to an impairment test, which consists of comparing the current value of the fund with its value on the balance sheet.

To carry out this operation, it is necessary to evaluate the goodwill as a whole in order to be able to determine, by deduction, the value of the goodwill. This evaluation must be structured by a forecasting process, which will make it possible to determine each year the value in use of the goodwill (ie the value of the future income gener

 

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