Define Goodwill

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 Good will:-

    Good will is an intangible asset but not fictitious. Although it is not tangible asset like plant and machinery, Buildings etc, nevertheless it contributes to the profit earnings capacity of the business.

   Goodwill is valuable asset if the business concern is profitable, but if the business is suffering from continuous, it is valueless.

Good will is defined as an element arising in which enables it to earn greater profits than the return normally to be expected in the capital represented by the net tangible assets employed in the business.

   According to Kohler's " goodwill is the current value of expected future income in excess of a normal return on investment in net tangible assets".

   It is treated as an intangible asset in accounts .

  It is sometimes described as a momentum or a push that keeps the business going without further effort like the momentum of a boby continues its motion against a retarding force till it comes to rest gradually.


Features of Goodwill:-


1) Good will is incapable of realisation separately from business as a whole i.e, good will is realisable only if the business is disposed.


2)  value of Goodwill has no relationship  to any costs which might have been incurred to build it.


3) The value of good will may be positive or negative. It is postive when the value of business is more than the value of it's net separable Assets and negative when the value of business is less than value of it's net separatable assets.


4) The value of good will fluctuates from time to time due to international and external factors.


5) it is not possible to value separately each of the intangible factors contributing to goodwill.


6) Assessment of the value of good will is highly subjective and differs from valuer to valuer.


7) Good will may be inherent or purchased good will. Inherent good will is internally generated. It is not shown in financial statement. It is not included in purchased consideration and it's valuation depends on the subjective judgement of the valuer.


Need for valuation of Goodwill:-


  The need for valuation of Goodwill depends upon the form of business organisation.

  In case of sole Trading concern it is usually valued at the time of selling the business. Inc as partnership concerns, the necessity arise in the following cases.


   (a) when a new partner is admitted


(b) when a partner retires or dies 


(c) when there is a change in profit sharing ratio among the partners


(d) when the firm sells it's business to a company

In case of joint stock company it is valued

(a) when two or more companies amalgamate


(b) when one company takes over another company


(c) when a company wants to acquire controlling intrest in other company and


(d) when government takes over the business.










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