Question

what is the nature nd valuation of goodwill???? ❤❤​

Answer 1

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Goodwill is the value of the reputation of a firm built over time with respect to the expected future profits over and above the normal profits. A well-established firm earns a good name in the market, builds trust with the customers and also has more business connections as compared to a newly set up business. Thus, the monetary value of this advantage that a buyer is ready to pay is termed as Goodwill.

$\bigstar$ Nature of business:

A firm that deals with good quality products or has stable demand for its product is able to earn more profits and therefore has more value.

A business which is located in the main market or at a place where there is more customer traffic tends to earn more profit and also more goodwill.

Special Advantages :- A firm that has special advantages like import licenses, patents, trademarks, copyrights, assured a supply of electricity at low rates, subsidies for being situated in a special economic zones (SEZs), etc. possess a higher value of goodwill.

Need for the Valuation :-

In the context of a partnership firm, the need for valuation of goodwill arises at the time of:

Change in the profit sharing ratio amongst the existing partners :-

• Admission of a new partner
• The retirement of a partner
• Death of a partner
• Dissolution of a firm where business is sold as going concern.
• Amalgamation of partnership firms

Answer 2

value of good reputation firm

hope it helps

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