AtreyaCurious In: 1. Financial Accounting > Goodwill What do you mean by goodwill ? What do you mean by goodwill ? Share Facebook You must login to add an answer. Username or email* Password* Captcha* Remember Me! Forgot Password? Need An Account, Sign Up Here 2 Answers Voted Recent kamalrawal Lotus 2023-05-23T14:18:07+00:00Added an answer on May 23, 2023 at 2:18 pm Goodwill is a future expected profit arising due to past effort , it is an intangible asset , which is shown at asset side of balance sheet under the heading of fixed assets 0 Share Share Share on Facebook Share on Twitter Share on LinkedIn Share on WhatsApp Ishika Pandey Curious ca aspirant 2023-05-23T14:18:12+00:00Added an answer on May 23, 2023 at 2:18 pm Definition Goodwill is an intangible asset that places an enterprise in an advantageous position due to which the enterprise is able to earn higher profits without extra effort. For example, if the enterprise has rendered good services to its customers, it will be satisfied with the quality of its services, which will bring them back to the enterprise. Features The value of goodwill is a subjective assessment of the valuer. • It helps in earning higher profits. • It is an intangible asset. • It is an attractive force that brings in customers to the business. • It has realizable value when the business is sold out. Need for goodwill valuation The need for the valuation of goodwill arises in the following circumstances : • When there is a change in profit sharing ratio. • When a new partner is admitted. • When partner retires or dies. • When a partnership firm is sold as a going concern. • When two or more firms amalgamate. Classification of goodwill Goodwill is classified into two categories: • Purchased goodwill • Self-generated goodwill Purchased goodwill : Is that goodwill acquired by the firm for consideration whether paid or kind? For example: when a business is purchased and purchase consideration is more than the value of net assets the difference amount is the value of purchase goodwill. Self-generated goodwill It is that goodwill that is not purchased for consideration but is earned by the management’s efforts. It is an internally generated goodwill that arises from a number of factors ( such as favorable location, efficient management, good quality of products, etc ) that a running business possesses due to which it is able to earn higher profits. Methods of valuation 1. Average profit method 2. Super profit method 3. Capitalization method Average profit method: goodwill under the average profit method can be calculated either by : • Simple average profit method or • Weighted average profit method 0 Share Share Share on Facebook Share on Twitter Share on LinkedIn Share on WhatsApp Related Questions What are some examples of deferred revenue expenses? Are brands intangible assets? What comes in debit side of Realisation account? What is recorded in the Realisation account? What is not included in Realisation account? What is recorded on the credit side of a Realisation account? Can accounts payable have a debit balance?