Valuation Of Goodwill By The Arbitrary Assessment Method

August 2nd, 2007 Comments off
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Valuation Of Goodwill By The Arbitrary Assessment Method

  1. In this Arbitrary Assessment Method either the purchaser or seller or both parties may estimate the value to be placed on the goodwill

  1. This method normally applies in situations where the profits cannot be used as a guide to future profit like in cases where:
  • No profits may have been earned in the years immediately prior to the sale so that goodwill is unable be based on the profit earning capacity
  • If there is profits, the profits are of such abnormal nature
  • If there is profits, the profits are of such unreliable nature
  • The proposed acquire business may be acquired and converted into one of a different nature of business from that existing prior to the date of purchase.
  1. Valuation of goodwill can be higher if there are explicit benefits/gains by acquiring the business like:
    • Trading advantages ( e.g. quotas, more sales territories)
    • Certain important licenses ( gambiling,etc)
    • Shop located in extremely good location where the lease can be pass on to the buyer

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Financial Accounting

 
 

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