Question

Describe the additional accounts and procedures used in manufacturing companies. In addition, explain the computation of goodwill for a business acquisition.

Answer 1

Accounts and procedures used in Manufacturing companies are similar to other industry companies however there are few accounting procedures needs to be follow in case of manufacturing companies which are mentioned below.

• Manufacturing companies need to follow complete accounting cycle i.e . from recording to each financial transactions into journal entries, ledger, preparing trial balance and assessment of financial performance of the business by preparing financial statements including P& L Statement, Cash Flow Statement and Balance Sheet.
• To assess the valuation of the company's inventory two major methods are used to measure the Inventory value of the manufacturing companies i.e FIFO method ( First In First Out) and LIFO Method ( Last In First Out). Few entity also considered weighted average method while computing the value of their inventory at the end of the year.

Goodwill for the business acquisition refers to the excess amount paid by the Investor firm to the Investee firm excess to the fair market value of the net assets of the firm acquired. Goodwill are recorded as Asset side in the balance sheet. It is the Intangible asset. Goodwill has the debit amount.

For Example Company A acquired company B at $300000 on certain date. However the fair market value of company B net assets at the time of acquisition was $250000. In this scenario, Company A paid $50000 amount as Goodwill.

$50000 will be debited along with other assets of Company A ( Investor)