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Unit 11: Valuation of Goodwill
Pavitar Parkash Singh, Lovely Professional University

unit 11: valuation of goodwill notes

contents

Objectives
Introduction
11.1 Meaning and Definition of Goodwill
11.2 Nature and Components of Goodwill
11.2.1 Nature of Goodwill
11.2.2 Components of Goodwill

11.3 Features and Need for Valuation of Goodwill
11.3.1 Special Features of Goodwill
11.3.2 Need for Valuation of Goodwill
11.4 Factors Affecting Goodwill

11.5 Methods for Valuation of Goodwill
11.5.1 Average Profit Method
11.5.2 Super Profit Method
11.5.3 Capitalisation Method
11.5.4 Annuity Method

11.6 Summary
11.7 Keywords
11.8 Review Questions
11.9 Further Readings

objectives

After studying this unit, you will be able to:
l z State the meaning and definition of goodwill
l z Describe the nature, concept, components and features of goodwill

l z Explain the need and factors of goodwill
l z Discuss the methods for valuation of goodwill
introduction

Goodwill of a business means reputation, popularity or image of the business in the market.
Goodwill of a business is earned by the entrepreneur by delivering good quality production,
honesty of the businessman, harmonious relations with labourers, pricing of the product and
availability of technical knowledge etc. Goodwill of a business attracts more customers towards
itself like a magnet. As a result, the business earns more or excess profit over the normally-earned
profit on the same capital employed by the other concerns engaged in the same business.

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