VALUATION OF GOODWILL
INTRODUCTION
Goodwill means the reputation of a Business concern which
enables businessmen to earn extra profit, as compared to other
concern. Goodwill means various advantages of reputation and
connections of a business.
Mr. Kohler defines goodwill as the current value of expected
future income in excess or normal return on the investment in net
tangible assets:
NEED FOR VALUATION
The need for valuation of goodwill depends on the form of a
business organisation. The circumstances in which the goodwill is
valued are given below.
Form of BusinessNeed for valuation
Sole proprietorPartnership firm
CompanySale of businessConversion into partnershipAdmission of
partner Retirement / Death of partner Change in profit sharing
ratio Amalgamation of firmDissolution on account of sale of
business. Conversion into Private / publicLimited
company.Mergers/Acquisitions of businessTransfer of controlling
block
CHARACTERISTICS OF GOODWILL :
1. It is an intangible or invisible asset.
2. Its value is not fixed. It is subject to fluctuation due to
internal as well as external factors in value.
3. It can not valued in isolation.
4. Its valuation is attached to the total value of the
business.
5. It has value only on going concern basis.
6. It is either created internally or purchased from
outside.
7. Because off Goodwill a firm is able to earn excess profits
than the other firms in the same class of business.
8. value of Goodwill may differ due to different method used. In
certain cases it is not transferable.
