GOODWILL :
Goodwill is the value of reputation of a business house in respect of the profits expected in future over and above the normal level of profits earned by undertakings belonging to the same class of business. In other words, goodwill is the present value of a firm’s anticipated super normal earnings. The term super normal earnings means the earnings over and above the normal rate of return earned by representative firms in the same industry. Goodwill refers to the reputation of a business enterprise acquired by it over the period of time through its successful operations and customers’ satisfaction. It is an attribute of business which enables it to earn more than other firms in the industry. Goodwill is an intangible asset but not a fictitious one. The following are some of the factors that generally contribute to the value of goodwill of a firm:
–Quality of goods sold by the firm
–Location of the business unit
–Reputation of the owners of the firm
–Monopolistic nature of the business
–Risk involved in the business
–Efficiency of management
–Possibility of competition
–Government attitude
–Possession of special contracts for availability of materials
–Trends of profits, etc.