Chapter No. 3 – Partnership Accounts – II (Goodwill: Nature and Valuation)- USHA Publication Class +2 – Solution
Goodwill is the value of a company or firm in the eyes of the customer. If any business has more market share then it will have a higher value of goodwill.
What is Goodwill: –
When one business acquired in a whole or some percentage of share of another business for the amount which is more than the total assets of that business. That amount of difference which is paid extra is known as goodwill. It is a tangible asset.
Now question is thatwhy business pay extra from the total value of the assets of the business?
There any reasons for that but some of the important are shown as under:
Higher market share
More customer reliability
or have a proprietary technology
In partnership, when a new partner wants to enter into the business then the old partners who are going to sacrifice their share of profit in business for his share, they want some amount for the hard works done by them in past to make a profitable business, this amount is treated as goodwill. It is calculated on the basis of the previous year’s profits and losses(if any).