Concept Of Goodwill
The name and fame of an organization can be termed as goodwill. Goodwill is the benefit and merit of good name and reputation. Goodwill refers to a measure of the capacity of a business to earn excess profit. Therefore, goodwill can be defined as an intangible asset of the business.
Thus, goodwill may also be defined as "value of the reputation of business". It is a valuable asset if the concern is profitable. It is useless if the concern is a loosing concern. Goodwill can be described as the extra sale able value attached to a prosperous business beyond the intrinsic value of net assets. Thus the existence of goodwill can be felt through extra earning power. Because of such a nature, it seems like a real assets. But since it is invisible such as patents, trademark, copyrights etc. goodwill is termed as intangible assets.
Need For Valuation Of Goodwill
The need for valuation of goodwill arises in various circumstances. Some of the circumstances are as follow:
1. In the case of sole trading concern, goodwill is valued at the time of selling of business, to take any person as a partner, to convert sole trading concern into a company.
2. In the case of partnership, when there is an admission, retirement and death of partner, amalgamation, conversion into a company and change in profit sharing ratio.
3. In the case of company, goodwill is valued at the time of amalgamation of two or more companies, absorption of company, reconstruction and holding company. The valuation of goodwill also becomes necessary, if the shares have to be valued on the basis of intrinsic value, market value or fair value and if the stock exchange quotation of the value of shares of a company is not available.
4. For taxation purpose such as wealth tax also, the valuation of goodwill is necessary.
The name and fame of an organization can be termed as goodwill. Goodwill is the benefit and merit of good name and reputation. Goodwill refers to a measure of the capacity of a business to earn excess profit. Therefore, goodwill can be defined as an intangible asset of the business.
Thus, goodwill may also be defined as "value of the reputation of business". It is a valuable asset if the concern is profitable. It is useless if the concern is a loosing concern. Goodwill can be described as the extra sale able value attached to a prosperous business beyond the intrinsic value of net assets. Thus the existence of goodwill can be felt through extra earning power. Because of such a nature, it seems like a real assets. But since it is invisible such as patents, trademark, copyrights etc. goodwill is termed as intangible assets.
Need For Valuation Of Goodwill
The need for valuation of goodwill arises in various circumstances. Some of the circumstances are as follow:
1. In the case of sole trading concern, goodwill is valued at the time of selling of business, to take any person as a partner, to convert sole trading concern into a company.
2. In the case of partnership, when there is an admission, retirement and death of partner, amalgamation, conversion into a company and change in profit sharing ratio.
3. In the case of company, goodwill is valued at the time of amalgamation of two or more companies, absorption of company, reconstruction and holding company. The valuation of goodwill also becomes necessary, if the shares have to be valued on the basis of intrinsic value, market value or fair value and if the stock exchange quotation of the value of shares of a company is not available.
4. For taxation purpose such as wealth tax also, the valuation of goodwill is necessary.
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