ACCOUNTANCY.

Timaru Herald, Volume XIIC, Issue 13608, 30 May 1908, Page 2

ACCOUNTANCY.

DISCUSSION ON " COODWILL-"

The fiiiifc .meeting for tlie winter .season of the Timani Accountant Students' Society was lield in tlie Technical >Scliool last evening. There was a. smaller attendance than usual.

The chairman, Mr J. L. Gillies, on opening the meeting, stated that the subcommitte..- appointed tried to obtain lectures from outside accountants, but these were busy men, and they could not find time to prepaie papers. The members of the society must therefore rely upon themselves for papers and material for discussions on accountancy. Thev had, however, promise?; of two or three lectures 011 law by solicitors in town. An honorarium of £5 5s recommended to be assigned to the secretaryship, and Mr H. E. Amyes accepted the post. The chairman then read a short paper 011 "Goodwill." which gave rise to an interesting discussion, and quotation of instances. In many account; books and balance sheets they mot with a "goodwill account," and the question was, Row wasthe goodwill arrived at? Books on accountancy gave different, definition* of it. Generally, the definition amounted to this, that goodwill was the value of a business over and above the value of the stock-in-trade and the money invented in it; and sometimes it. was "the principal asset. Hie books of a business might contain no " goodwill account," yet goodwill would be taken into account in ;i sale of the business, and then there wax a reason for having an account, in tlie pi ice paid for it. It was also of importance in partmership accounts, when an additional partner was taken in, to share in the profits of a business built, up by the previous proprietor or partners. Sometimes a goodwill account- was written down, to save showing too large protits; and cases had occurred wherein the goodwill account was "written up," to improve the profil account-, but a keen auditor would not allow that. The minimum value was what a seller would take, the maximum what a buyer would give, these valuations often varying widely. Sellers of solitary businesses must beware of asking too tnucli, for the would-be buyer might not buy, but become a competitor. Sometimes it paid a man who wanted to start in a place, U> give a good price for tin; goodwill of an existing business, to get riu of op-/ position. A goodwill account, if -for anv reason it- appeared ought to lie wiped out by writing down as soon as possible by appropriation of profits to that purpose. Tlie value would not be los v , butwould bu a sort, of secret reserve, embedded in the stock, and it would come out. there in the event of a sale. A company purchasing a business managed by the proprietor must beware of the item, because it might represent the proprietors unremunerated personal services, in place of which the company would have to pay a manager. All authorities advised getting rid of the account- as soon as possible; the business was 110 better oil' for keeping

it, no worse for abolishing it. In the coulee of a discussion iL was observed that a. buyer, noticing that the goodwill account- had been partially written down, might suspect that, that implied a. weakening of tlia business, and if. Mas replied that a business man would buy a business from his own estimate of its future, not of the present owner's past Micceso with it. It -was elicited that, in the case of a third partner coming into a business whose goodwill was valued afc £6OO.

ihe incomer should pay £2CO, to the capital account, in order to take one-third of the profits ; or liis share of the profits should be calculated after deducting £6OO from the total capital account. Several cases were quoted of difi'ereing estimates of the values of goodwills, and the variey of circumstances affecting tlie.se values was mentioned, such as the effect of refusing an offer and suffering opposition, which at once or presently reduced the value; the effect, of good times and brisk business, and so on. Tho large, sums paid for the goodwills of ('town leases were mentioned, and tlie explanation was offered that the buyer calculated the interest on the money art an increase of the rent, and reckoned he could afford to pay such increased rent for the land. Tliti basis of calculation of the goodwill of ;i mercantile business was variously given as the profits for six mcmtlto, nine months, or one year, on the average of two, three or four years, according to the nature of the business, the goodwill being worth the more, the larger the pro/its in proportion to tho capital required. A vote «f thanks to Mr Gillies closed the meeting.