Goodwill is the value of a firm’s reputation and its good brand name in the market. A firm earns goodwill through its hard work. Goodwill helps a firm in winning the trust and faith of the customers by fulfilling their demands in both qualitative and quantitative aspects.
It can be said that the goodwill of a firm is a result of the past efforts made by it which helps a firm to earn higher profits in present and in the future as well. In other words, positive goodwill helps a firm to earn supernormal profits as compared to the other firms that earn only normal profits.
Goodwill is considered an intangible asset of the firm. It means it cannot be seen or touched like other assets of the firm. It plays a very crucial role for any firm to survive and compete in the market. In the words of Lord Eldon, “Goodwill is nothing more than the probability that the old customers will resort to the old place”. The following are the characteristics of Goodwill
Characteristic of Goodwill
- It is an intangible asset.
- It is not a fictitious asset.
- It is difficult to ascertain the exact value of goodwill.
- It enhances the present as well as the future earning capacity of a business.
- It helps in earning supernormal profits against normal profits.
- It is a basis for winning customers’ trust and faith.
- Positive goodwill not only facilitates a firm to win customers’ trust but also helps the company to excel over its competitors.
A profit and Loss Account is the second financial statement prepared by an organization. This account is prepared to ascertain the net results of a firm in form of net profit earned or net loss incurred during an accounting period.
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