Goodwill Valuation- Factors Affecting Valuation & Various Methods

Goodwill depends on many factors like:

  • the nature/type of the business,
  • the type of customer which such a business is inherently likely to attract,
  • the expenditure already made in advertisements & promotions establishing the business,
  • the reputation existing and
  • the probabilities of the market.

[As described earlier, goodwill consists of the advantages a business has in connection with its customers, employees and outside parties with whom it has contact.]

The method to be adopted in valuing goodwill will depend upon the circumstances of each case.Append below are the various methods of Valuing Goodwill:

Methods Use To Value Goodwill:
  1. By an arbitrary assessment
  1. By a capitalization of expected future net profits or earnings
  1. By a certain number of years’ purchase of past profits or earnings
  1. By an assessment based on turnover
  1. By a certain number of years’ purchase of super profits or earnings
  1. By the Annuity method.


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