Malone Industries has been in business for five years and has been very successful. In the past year, it expanded operations by buying Hot Metal Manufacturing for a price greater than the value of the net assets purchased. In the past year, the customer base has expanded much more than expected, and the companys owners want to increase the goodwill account. Your CPA firm has been hired to help Malone prepare year-end financial statements, and your boss has asked you to talk to Malones managers about goodwill and whether an adjustment can be made to the goodwill account.

This is the actual post, how can I respond to this comment below ???

I think the request from my boss is really an odd request because my boss asked me to talk to Malones managers about the goodwill and whether an adjustment can be made to the goodwill account. The purpose of the customer to hire my CPA firm is to increase the goodwill account. With that being said, I rather explain to the client what happens to year-end financial statements when the adjustments are made.

I would explain to the client, a goodwill is an amount in which a companys value exceeded the value of its individual assets and liabilities. This can include management, skilled workforce, good suppliers/customer relations, quality products or services, and other competitive advantages. Goodwill is recorded as an asset, not as amortized and only recorded when an entire company or business segment is purchased. To calculate the value of goodwill is to compute purchase price of the company minus the market value of net assets. Since Malone expanded much more than expected, it is recorded as debt to net assets goodwill and credit to cash. The record will show on the financial statement. The benefit of having an adjustment done on the financial statement are: the company can produce more income in existing capital, the company is earning additional income due to the presence of its goodwill and increases expectational growth for the company. It helps attract new customers and produce more products and service.