How Goodwill Arises & Definition Of Goodwill

This article deals with how goodwill normally arises and what does goodwill means.

Goodwill normally arises :
When a partnership admits a new partner, two important things are considered:

  • Profit adjustment whether in terms of existing and future profits and
  • Goodwill

Also, besides new partner(s) being admitted, the death or retirement of an old partner also needs the computation or valuation of goodwill of the partnership.

Simple Definitions of Goodwill:
  • “ as the cost of acquisition less the aggregate fair value of the purchased assets and liabilities”
  • In simple everyday terms, the advantage a business has in its connection with its customers. Why is this so? The goodwill of a business may be due to the following:
  • Location of the business
  • Nature and reputation of its products and services
  • Its trademarks, patents and / logo
  • Professional high quality skillful management and or labor
  • Having advantage like difficult entry into the industry or freedom from legislative restrictions ( casino,etc)
  • Possession of partial or complete monopoly.

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