Need for Valuation of Goodwill

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. Need for Valuation of Goodwill is discussed below

Need for Valuation of Goodwill

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
  • When a new partner is admitted to the firm
  • When a partner retires or dies
  • When a partnership firm is sold
  • When a partnership firm is amalgamated with another firm

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