Goodwill: Definition and Valuation of Goodwill!
Definition: A business builds builds up some reputation after it has continued continued for for some time. time. If the reputation is good, the firm will come to acquire a fixed clientele in the sense that a number of customers will automatically make their purchases from the firm. This is a very valuable asset even if one cannot touch or see it. The asset is intangible but not fictitious. This asset is known as goodwill and may be defined as the value of the reputation of a firm. Its tangible effect is extra profit which firms not possessing equal reputation do not earn. यय ययय ययय यय ययय यययय ययय यय यय ययय यय ययययययय ययय ययययययययय यय ययययय ययय ययययय यय, यय ययययय यययययययय यय यययययय यययययययय ययय यय यययय यययय यय ययययय यय यययय यय यय यययय ययय यय ययययययय यययययययय यय यययययययय यययय यय ययय य यययययय यययय यय यय ययय यय यययययय यययय यय ययय ययय यययय यय यययय यय यय यययय यय यययययययय ययययययय ययय ययययययय यययययय ययययय यययय ययययय ययय यय ययययय यययययययय यय ययय ययय यययय यययय यय यय यय ययययय यय ययययययययय यय ययय यय ययय ययय यययययययय यययय यय यययय ययय यययय ययय यययययय यय यययययययय यययय ययययययययय यययय यययय यययय ययययय यय यययययययय ययय ययय
Valuation of Goodwill: Goodwill: Three methods are in use: ययय ययययययय ययय ययययय यय ययय ययय:
(a) Average Profits Basis: In this method, the profits of the past few years are averaged and adjusted for any change that is expected to occur in the near future. The adjusted average is multiplied by a certain number (say, 2 or 3 or 5) as agreed. It is expressed, for example, as 3 years’ purchase of five years’ average profits. If, for example, the profits for the last five years have been Rs 80,000, Rs 90,000, Rs 70,000 Rs 85,000 and Rs 1, 00,000; the average yearly profit comes to यय यययय ययय, ययययय ययय यययययय यय यययययय यय ययय यैै यय यययय यययययय ययय यययय यय यययययय यय यययय यय यययययययय यय ययय ययययययययय यययययययय ययय ययययय यय ययय ययय यय ययययययय यययययय यय यययययय (यययय ययय, यय 5) यययय ययय यय यययययय यय यय, यययययय यय ययय,
2 यय 3
3 ययय यय
यययय यययय यय यययय यय ययय ययय ययय यययय ययय, यययययय यय ययय, ययययय यययय यययययय यय ययय ययय यय,ययय यय, ययययय
90,000 यययय 70,000
ययययय 85,000 यय यय 1,
00,000
यययय ययय यय;
ययय ययययययय ययय यय ययय ययय यय
(b) Super Profits Basis: In every industry, there is a rate which is considered to be the normal rate at which profits are expected to the earned on capital employed. If a firm is able to earn more than the normal expected profit, the excess is called super profits which can be attributed to the special advantages of firm. यय यययययय ययय, यययय यय यय यय यय ययययययय यय ययय यय यय यययययय ययययय ययययययय यययय यय ययय यययययय यय यययययय यय ययय ययय यययय यययय यय ययय यय यययय यययय ययययययय
यययययययय ययय यययययय यययय ययय ययययय यय, यय यययययययय यययय ययय यय यययय यय ययययय ययय यय ययय ययययययययय यययययय यय यययय ययय यययय ययय
(c) Capitalisation Method: In this method, the value of the whole business is found out by the formula, यय यययय ययय, यययय ययययययय यय ययय ययययय यययययय यययय यय,
Accounting Treatment of Goodwill: Because of the provisions of the Accounting Standard 10 on Accounting for Fixed Assets, accounting treatment of goodwill has undergone a fundamental change. ययययययय ययययययय यय ययय यययय यय यययय यययय 10 यय यययययययययय यय यययय, ययययययय ययययय यययययययय यय यय ययययय यययययययय ययय ययय
