Goodwill Meaning, in general terms is the positive reputation of the firm, which enables it to achieve higher profitability, against its competitors, by helping it to attract a larger number of customers.
The definition of Goodwill given by various authorities are as under:
“The term goodwill is generally used to denote the benefit arising from connections and reputation.”
“Goodwill is nothing more than the probability that the old customers will resort to the old place”.
Spicer and Pegler
“Goodwill may be said to be that element arising from the reputation, connections or other advantages possessed by a business which enables it to earn greater profits than the return normally to be expected on the capital represented by the net tangible assets employed in the business.”
Characteristics of Goodwill
- Goodwill is an intangible asset. It cannot be seen our touched.
- Goodwill is not a fictitious asset as it has a value .
- Goodwill is an attractive force, which attracts more number of customers to old place of business.
- Goodwill increases profitability level of the firm;
- The value of goodwill constantly fluctuates.
The need for Valuation of Goodwill may arise under the following cases : –
(i) Change in profit sharing ratio amongst existing partners.
(ii) Admission of a new partner in a partnership firm.
(iii) Death or retirement of an existing partner in a partnership firm.
(iv) When two firms are amalgamated.
( v) When the business of a firm is sold to outsiders, valuation of goodwill of business.
- Factors affecting Goodwill
- Types of Goodwill
- Methods of valuation of goodwill
- Weighted Average Profit Method
- Goodwill adjustment when profit sharing ratio changes
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