Question

what is the basis of valuation of goodwill ? in one word​

Answer 1

Answer:

The valuation of goodwill is often based on the customs of the trade and generally calculated as number of year's purchase of average profits or super-profits. Valuation of purchased goodwill: (1) Average profit method : Under this method average profit is calculated on the basis of the past few year's profits.

Answer 2

Answer:

The basis of valuation of goodwill is profits, which refers to the ability of a business to generate earnings over and above its tangible assets.

Explaination:

• Goodwill represents the intangible value of a business, such as its reputation, customer relationships, brand recognition, and intellectual property. These factors contribute to the business's ability to generate profits over the long term, and therefore, its overall value.

• There are different methods used to calculate the value of goodwill, but they all involve analyzing the business's financial performance to determine its future earning potential. This includes evaluating the business's historical earnings, growth prospects, industry trends, and competitive environment.

• One common method for valuing goodwill is the capitalization of earnings approach, which involves estimating the business's future earnings and applying a capitalization rate to arrive at a present value.

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