Accountancy

The weighted Average Profit Method is similar to the Average Profit Method for calculating the goodwill of a firm. Under this method, the only difference is that

Under Average Profit Method, goodwill is calculated on the average basis of the normal average profits of the last few years.

Methods for Valuation of Goodwill: Average Profit Method, Weighted Average Profit Method, Super Profit Method, Capitalization Method…

The following are the various situations in which the need for the valuation of goodwill arises. When there is a change in the profit-sharing ratio of the firm

Self-generated Goodwill is not purchased or bought for consideration but rather generated as a result of the hard work and efforts of the members of the firm.

Purchased goodwill is recorded in the books of accounts since the amount paid can be fairly determined. This goodwill arises when, for instance

Types of Goodwill: Purchased Goodwill and Self-generated Goodwill. Whenever a firm is sold to another firm generally a consideration is paid in cash or kind

One of the important factors affecting the goodwill of the firm is the quality of the product. Quality product means producing the right and standard featured products and selling them at reasonable prices.

Nature of Goodwill: By the very definition of Goodwill, we can figure out that it is something that cannot be touched, seen, or felt but has the potential to generate enormous returns

Characteristic of Goodwill: It is an intangible asset. It is not a fictitious asset. It is difficult to ascertain the exact value of goodwill.