Goodwill and related concepts Goodwill is known as the reputation or ‘good name that is earn a firm through the honesty of the owner and hard work. The satisfied customers will come again and again, and the firm will be able to earn more profits in future, if at all a firm renders good service to the customers. Goodwill and related
According to Lord Eldon, goodwill is not more than the probability that the old customers will utilize in the old place.
Lord Lindley said that goodwill helps to denote the benefit that is arising from connections and reputations. Goodwill and related
Spicer and Pegler said that “goodwill can be defined as an element that arises from the connections, reputations or other advantages that is possessed by a business which helps it to earn greater profits than the return that is normally expected on the capital which the net tangible assets employed in the business represent.
Goodwill and related concepts
Now we should focus on some characteristics of Goodwill, that are important while taking accounting assignment help. The characteristics are: –
It is an intangible asset:Contents Hide
- Goodwill is known as an intangible asset such as trademarks, patents, copy rights, etc. Same as other assets, there is no chance of depreciation and even it does not have to suffer wear and tear.
- It also considered to be a valuable asset.
Its value is not liable to constant fluctuations:
- The value of goodwill is not liable to constant fluctuations since it does not depreciate. It falls in the value with fall in earnings and where there are super profits in a business (that is, more than the normal), is present as a silent asset.
It is difficult to determine the exact value of Goodwill:
- The reason for this is that the value of Goodwill might change from time to time due to the altering circumstances that may be external and internal to business.
- gives help in earning excess profits.
It is valuable only when the entire business is sold:
- Goodwill is not meant to be sell in parts rather it can be sell with the entire business except when a partner is being admitted into the firm or is being retire from the firm.
Students must also keep an eye on factors that affects the Value of Goodwill while going for assignment help: –
Favorable location of the business:
- Goodwill will be high if the business will attract more customers and that would be possible only when the business is located at a prominent or convenient place.
- Capital required: The value of goodwill will also be influenced by the amount of capital that is required for a business. The business with lesser capital requirement shall enjoy more goodwill if two business enterprises earn the same rate of profit.
- Monopolistic and other rights: If business enjoys monopoly market, it will have assured profits. Likewise, it will have more goodwill if it holds some special rights such as trademarks, concessions, patents, copy rights, etc.
- The Longevity of the business: The older business has more chances of getting high Goodwill as it is better known to the customers. The number of customers of new entrants will be less when comparing with the number of customers in a business enterprise. that has built up good reputation over a period of time.
The efficiency of management:
- Nature of Goods: The business will have steady profits if it deals in goods that are used daily, as the demand for these goods will be stationary. Such types of businesses will be having more Goodwill. The value of goodwill will be less if it deals in fancy goods since its profit will be uncertain.
- Possession of License: The goodwill of the firm will be more if it holds an import license as it would be very difficult for the other firms to enter the business in the absence of this license.
- The risk involved: The value of the goodwill will be less if more risk is involved in the business.
- The trend of profit: The value of the goodwill of the business will be more if the profits of the business are rising continuously. Contrarily, the value of the goodwill will be less if the profits are declining or if the profits are uncertain.
- Future competition: The value of goodwill would reduce because of the likelihood or possibility of increased competition in future.
- Good industrial relations
- Popularity of product in terms of quality
- Research and development affairs
- Favorable government regulations
- Stable political conditions
- Effective advertising to establish brand popularity
Now we should learn some classifications of Goodwill that must be understand for effective accounting assignment help. The classifications are as follows: –
- The goodwill that is acquire make a payment is know as purchase goodwill. The purchase goodwill involves some important features which are as follows:
- It arises when the business is purchase.
- It is reflecte in the Balance Sheet in the form of asset.
- As consideration is pay for the purchase goodwill so it is record in the books of accounts.
- It also gets depreciate over its useful economic life.
Self-Generated Goodwill or Inherent Goodwill:
- The goodwill that is internally generate and which arises from a number of attributes or characteristics which is possesse by an on-going business. The important features of self-generated goodwill are as follows:
- A self-generated goodwill is generate internally over a long period of time.
- Accounting Standard 26 (that is, intangible asset) states that it cannot be record in the books of accounts.
- since consideration in money or money’s worth is not pay for it.
- This type of goodwill cannot have a true cost. The subjective judgement of the valuer helps to take out its value.
Hence, the above points are to be noticed while referring for assignment help on goodwill.