Important of social goodwill
Answers
Goodwill
Goodwill may be described as the aggregate of those intangible attributes of a business which contributes to its superior earning capacity over a normal return on investment. It may arise from such attributes as favourable locations, the ability and skill of its employees and management, quality of its products and services, customer satisfaction etc.
Features of Goodwill
• Goodwill is an intangible asset. It is non-visible but it is not a fictitious asset.
• It cannot be separated from the business and therefore cannot be sold like other identifiable and separable assets, without disposing off the business as a whole.
• The value of goodwill has no relation to the amount invested or cost incurred in order to build it.
• Valuation…show more content…
• Locational factors—If a business is located at a favourable place; it enhances the value of goodwill.
• The period for which the business has been in business.
• Special advantages—A company that enjoys special advantages such as favourable contracts, assured supply of raw material at low rates, possession of trademarks, patents, copyrights, technical knowhow and research and development, well known collaborators etc. contribute to higher value of goodwill.
• Nature of Business—A business having stable continuous demand for its products such as consumer goods is able to earn more profits and hence has more goodwill. If the business is risky, profits will be uncertain. The monopoly condition or limited competition enables the enterprise to earn higher profits which leads to higher value of goodwill.
• Good relations with customers, suppliers, labour and government.
• Efficiency of Management—A firm having efficient management enjoys advantages of high productivity and cost of efficiency. This leads to higher profits which in turn increases the value of…show more content…
Unrealized profit
Unrealized profit is profit that comes from a currently active trade (i.e. a trade that has not yet been exited). Unrealized profit is profit that would be made if the trade was exited at that time. Unrealized profit will change with each price change, so it can be reduced to zero (or become an unrealized loss) at any time. Unrealized profit becomes realized profit at the moment that a trade is.