Valuation Of Goodwill By The Arbitrary Assessment Method
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- In this Arbitrary Assessment Method either the purchaser or seller or both parties may estimate the value to be placed on the goodwill
- This method normally applies in situations where the profits cannot be used as a guide to future profit like in cases where:
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- 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
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- If there is profits, the profits are of such abnormal nature
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- If there is profits, the profits are of such unreliable nature
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- 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.
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- 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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