​Goodwill is an intangible asset

places an enterprise at an advantage due to

which the enterprise is able to earn higher profits without putting extra efforts.
Goodwill is the present value of expected future income
excess of normal return on the investment in tangible assets or for
the excess of price paid for a business as a whole over the book value or over the computed or agreed value of
all tangible net assets
When a man pays for goodwill, he pays for something which places him in the position of being able to earn
more than he would be able to do by his own unaided efforts." -Dicksee

"Goodwill may be said to be that element arising from the reputation, connections or other advantages
possessed by a business which enables it to earn greater profits than the returns normally to be expected on
capital represented by the net tangible assets employed in the business." -
G/w-not fictitious asset
G/w realised when business or it's part sold
G/w- subjective depends on-assessment of valuer
In context of partnership,value of share of profit Sacrificed by sacrificing partner.
intangible asset is an identifiable non-monetary asset, without physical substance, held for use in the product
or supply of goods or services, for rental to others, or for administrative purposes.
Not recognize until consideration is paid for it
Purchased Goodwill shown- evidence for payment given
Self generated not show in books aa value us subjective and not evidenced by payment
NEED FOR valuing goodwill
1. When there is a change in the profit-sharing ratio.
2. When a new partner is admitteD
3. When a partner retires or dies.
4. When partnership firm is sold as a going concern.
5. When twp or more firms amalgamate.
6. When a partnership firm is converted into a company.
G/w-amotized
G/w affected by factor increasing earning capacity od firm
when a business is purchased and purchase consideration is more than the value of net assets (i.e., Assets -
Liabilities), the difference amount is the value of purchased goodwill.
AS-26, Intangible Assets prescribes that purchased goodwill may be recognised in the books of account and
written off at the earliest but within the estimated useful life.
If it is recognised, it is shown in the Balance Sheet as an asset.

(iv) Value of Goodwill is a subjective assessment but and seller agree to its valuation. it is ascertained when
both purchaser

(v) It is amortised at the earliest but not later than its estimated useful life.

(vi) Value of goodwill depends upon the purchaser's expectation of future profits
Internally generated g/w-self generated
Not recognize as asset
Value of good will is personal assessment of the valuer and is usually agreed among the partners
Profit- normal business profit excludes non business and abnormal trans.
Profit adjusted for errors and omission of the past Yr of which profit is considered
Simple average profit method;-
Normal profit determined
Totalled and avg taken
Multiply by no of yrs purchase
Value of goodwill calculated
Normal profit- future maintainable profits
This method is based on the assumption that profit of a newly started business will not match the profit of an
established firm or enterprise during the initial years of its operation. Hence, who purchases a running
business pays goodwill for being in a position to earn profit in the initial years of business.
What is meant by number of years' Purchase?
Number of years' purchase means the number of years for which the firm is likely to earn similar profit after
change in ownership because of the efforts put in the past.
Calculate good will of firm by adjustments :-
Profits Calculated after charging for abnormal loss of goods by fire.-
Abnormal gain-
Profit on sale of fixed assets-
Machines destroyed in accident
Firms asset not insured due to oversight, insurance premium regular expense, incurred every year- it
means sirf ek saal ka h ye baki sb se nhi hoga
5 cycles costing 20000 were purchases and we're wrongly debit to travelling expenses, depreciation oj
cycles charged 25%
Three partners have psr equal and admit another for equal.share, so now share will be 1/4 each
Repairs to car of ₹ 50,000 was wrongly debited to Vehicles Account on 1st June, 2020 Depreciation was
charged on vehicles @ 12% p.a. on Straight Line Method
Expenses hai agr to wo kisi ke basis pe cal. Ne hote isliye usi saal ka h dep. Par agle saal b charge hoga
kyuki asset bdh jate h ya ghat jata hai
Renumeration of partners is 9000p.a.,ap-54000 np. When return 10% avg cap.employed-300000
(value of services for handling business so it is deducted to determine normal profit.)
Drawback of the simple avg. method for valuation of goodwill is that trend of profitability is not
considered since each year's profits are given equal weightage; distinction is not made between a
business that has rising profits and one that has falling profits
More Weightage is assigned to the profit of recent year as it indicates the most likely profits in future.
gives more weightage to the profits of recent years. This method is particularly effective when profits show
rising (upward) or falling (downward) tends
Better than simple method
Weighted process;-
Calculate normal profit
Select the weight to be assigned given to each year's profits
Weighted avg. Profits
Goodwill
Capital employed means capital invested in firm to carry on business
Trade investment.- furtherance of business
Non trade inv- revenue by investing surplus fund
Ap earned by firm is 75000 which includes undervaluation of stock of 5000, not mentioned which stock -
considered closing stock
*avg. Capital employed & nrr is not relevant in; average profit
Capitalized value of business= capitalizing avg. Profit earned at a normal rate of profit