Accounting - Partnership Agreement Clauses

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Accounting 3.2 – Partnership Agreement Clauses

* What goodwill represents in Lucy and Gemma’s new partnership agreement for ‘Awesome Catering’. As Lucy and Gemma start there new partnership agreement from Lucy’s old business called ‘Lucy’s Catering and combine their assets and liabilities to form a new partnership called ‘Awesome Catering’, Lucy’s old business, ‘Lucy’s Catering’ will have Goodwill as an asset. Goodwill is the monetary value given to the reputation or customer loyalty of Lucy’s old catering business, Lucy’s Catering and is an intangible asset contributing to catering sales. During the formation of Lucy’s catering where assets and liabilities are joined with the assets and liabilities of Gemma, the goodwill of Lucy’s catering is also included in the formation with a value of $31,000 which means Lucy’s catering has an excellent reputation and customer loyalty to the value of $31000, and this may contribute to why Lucy’s Catering was so successful for Lucy as well as contributing to the future success of Awesome Catering. As Lucy takes on Gemma as her new partner for Awesome Catering a new accounting entity will be formed for Awesome Catering and as a result goodwill can be recognised by each of the partners and agreed upon by Lucy and Gemma at an arm’s length transaction which means the amount for goodwill for Awesome Catering will be true and free from bias. Goodwill can therefore be recognised in Awesome Caterings statement of financial position as it means all the characteristics and criteria of an asset. Goodwill can be gained for awesome catering or the old business, Lucy’s catering through increasing customer loyalty or excellent reputation. For example, Lucy’s catering may have completed a catering job for a new client who had heard about Lucy’s Catering and their good reputation from a friend who said they present excellent food at functions which may be why this new customer has decided to choose Lucy’s Catering above over...
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