Valuation of Goodwill is an important function of the finance department of an organization. Good will is an intangible asset but not fictitious. Although it is not tangible and it is not used like plant and machinery, furniture and fixtures, land and building, but like other tangible asset it contributes to the profit earning capacity of the business. It is the benefit and advantage of the good name, reputation and connection of a business. In an accountant’s point of view goodwill is said to be that element arising from reputation, connection or other advantages possessed by a business which enables it to earn greater profits than the return normally to be expected on the capital represented by net tangible assets employed in the business.
Types and Factors contributing to the Goodwill of a firm
Goodwill of a business may arise in two ways,
There are various factors which contribute to the Goodwill of An organization.
Methods for Goodwill Valuation
There are two accounting methods for goodwill valuation.
Goodwill is a long-term asset categorized as an intangible asset. Goodwill arises when a company acquires another company. The amount of goodwill is the cost to purchase the business minus the fair market value of the tangible assets, the intangible assets that can be identified, and the liabilities obtained in the purchase. The experts at Emirates Chartered Accountants Group assist the clients to value their goodwill. For more information contact us firstname.lastname@example.org