PROJECT REPORT ON GOODWILL
SUBMITTED TO :-
SUBMITTED BY:-
Ms. MenkaMehmi mi
Navdeep
Lect .OfComm mmer ce
B. com 1 year( 2 sem. m. )
ST
ND
( Defici ent ) Rol lNo. 10851395832
INDEX
INTRODUCTION OF GOODWILL
INDEX
INTRODUCTION OF GOODWILL
The name and fame of an organization can be termed as goodwill. Goodwill is the benefit and merit of good name and reputation. Goodwill refers to a measure of the capacity of a business to earn excess profit. Therefore, goodwill can be defined as an intangible intangible asset of the business. business. Thus, goodwill may also be defined as "value of the reputation of business". It is a valuable asset if the concern is profitable. It is useless if the concern is a loosing concern. Goodwill can be described as the extra sale able value attached to a prosperous business beyond the intrinsic intrinsic value of net assets. Thus the existence of goodwill goodwill can be felt through through extra earning power. Because of such a nature, it seems lie a real assets. But since it is invisible such as patents, trademar, copyrights etc. goodwill is termed as intangible assets .
Meaning of Goodwill: Goodwill may be described as the aggregate of those intangible attributes of a business which contributes contributes to its superior earning capacity over a normal return on investment. It may arise from such attributes as favourable locations, the ability and sill of its employees and management, !uality of its products and services, customer satisfaction etc.
Definition of Goodwill: According to Lord Elden,
“ Goodwill is notin! "o#$ t%n t$ &#o't%(ilit) t%t t$ old *+sto"$# will #$so#t to t$ old &l%*$,
FEATURE OF GOODWILL
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Intangi!le A""et:# Goodwill is an intangible asset. It is nonvisible but it is not a .
fictitious asset . #. Non "e$arated:# It cannot be separated from the business and therefore cannot be sold lie other identifiable and separable assets, without disposing off the business as a whole. 3.
%al&e of Goodwill:# The value of goodwill has no relation to the amount invested or cost incurred in order to build it .
'( %al&ation of Goodwill:# $aluation of goodwill is sub%ective and is highly dependent on the %udgment of the valour. &. Fl&ct&ation of Goodwill:# Goodwill is sub%ect to fluctuations. The value of goodwill may fluctuate widely according to internal and external factors of business. '. Nat&re of !&"ine"": ( business having stable continuous demand for its products such as consumer goods is able to earn more profits and hence has more goodwill. If the business is risy, profits will be uncertain. The monopoly condition or limited competition enables the enterprise to earn higher profits which leads to higher value of goodwill.
)( Relation"*i$":# It creates good relations with customers, suppliers, labour and government. ). Ca$ital Re+&ired:# If two businesses have same rate of profit, the business which re!uires lesser amount of capital tends to en%oy more goodwill.
FACTOR AFFACTING GOODWILL
( -rod&ct" and "er.ice":# It produces good !uality and outstanding !uality of
products and service. #. Location factor"*If a business is located at a favourable place+ it enhances the value of goodwill. 3.
-eriod :# The period for which the business has been in business .
. $ecial ad.antage":-( company that en%oys special advantages such as favourable contracts, assured supply of raw material at low rates, possession of trademars, patents, copyrights, technical nowhow and research and development, well nown collaborators etc. contribute to higher value of goodwill. &. Nat&re of /&"ine"":-( business having stable continuous demand for its products such as consumer goods is able to earn more profits and hence has more goodwill. If the business is risy, profits will be uncertain. The monopoly condition or limited competition enables the enterprise to earn higher profits which leads to higher value of goodwill. 6.
Efficienc0 of Manage1ent :-( firm having efficient management en%oys advantages of high productivity and cost of efficiency. This leads to higher profits which in turn increases the value of goodwill.
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Ca$ital Re+&ired:-If two businesses have same rate of profit, the business which re!uires lesser amount of capital tends to en%oy more goodwill.
2( Relation"*i$":# It creates good relations with customers, suppliers, labour and government.
ACCOUNTING FOR GOODWILL
T*e .ario&" wa0" in w*ic* goodwill can !e acco&nted for are a" follow": -a /arry it as an asset and write it off over a period of years through the profit and loss account. -b 0rite it off against profits or accumulated reserves immediately. -c 1etain it as an asset with no writeoff unless a permanent diminution in value becomes evident. -d 2how it as a deduction from shareholders funds which may be authorized carried forward indefinitely. In this connection, it is important to state that goodwill should be recognized and recorded in business only when some consideration in money or money3s worth has been paid for it.
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%al&ation of goodwill 1a0 !e 1ade d&e to an0 one of t*e following rea"on": 3a4 In ca"e of a ole#-ro$rietor"*i$ Fir1: -i If the firm is sold to another person+ -ii If it taes any person as a partner+ and -iii If it is converted into a company.
3!4 In t*e ca"e of a -artner"*i$ Fir1 : -i If any new partner is taen+ -ii If any old partner retires from the firm+ -iii If there is any change in profitsharing ratio among the partners+ -iv If any partner dies+ -v If different partnership firms are amalgamated+ -vi If any firm is sold+ and -vii If any firm is converted into a company.
3c4 In t*e ca"e of a Co1$an0: -i If the goodwill has already been writtenoff in the past but value of the same is to be recorded further in the boos of accounts+ -ii If an existing company is being taen with or amalgamated with another existing company+ -iii If the 2toc 4xchange 5uotation of the value of shares of the company is not available in order to compute gift tax, wealth tax etc.+ and
-iv If the shares are valued on the basis of intrinsic values, maret value or fair value.
IM-ORTANCE OF GOODWILL
I6 7 8 1 T ( 9 / 4 T 8 B : 2 I9 4 2 2
I6 7 8 1 T ( 9 / 4 T 8 / : 2 T 8 6 4 1 2 A4 Goodwill i" for /&"ine"" w*at Re$&tation i" for a -er"on ;ou can say that goodwill is an emotion that exists within us and when you create an emotional bond with the people, you deal with+ you are rewarded with opportunity, business networs, endorsements and trust.
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Building goodwill with customers. Goodwill is important to increase your customer base but also retain your old clients. This happens through wordofmouth publicity and recommendations. 6any customers return to you if you3ve provided them good customer service and have established a good relationship with them. Investors are attracted to businesses that have goodwill. The goodwill of your firm is e!uivalent to solid cash. It will help you obtain loans from bans with ease nowing that you are a valued customer. 9ew avenues open up+ opportunities are created through business networs if you have longstanding business goodwill.
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0hen you want to sell your business at any point in time, your reputation and the goodwill of your business will attract many potential buyers. ;ou will be able to sell your business for a good amount.
5ow to /&ild /&"ine"" Goodwill Goodwill is something that cannot be bought but has to be earned+ there is no way to earn it overnight. It will tae considerable time and effort to develop goodwill in for a business. 0e have listed some factors that aids in developing goodwill in business. •
Maintain t*e +&alit0 of 0o&r $rod&ct" or "er.ice" – 1emember that the first impression is the best impression. If your business provides !uality products=services right from the beginning, you are taing the steps towards developing goodwill.
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Ra$$ort !&ilding and integrit0 – People will fnd dealing with your business easier when you take pleasure in servicing them and when you provide business integrity.
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/rand co11it1ent -;our business should be one step ahead of your competitors. ( business under the limelight for the right reasons will attract goodwill for itself.
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er.ice "ati"faction – ( customer is liely to return to you and also recommend your services=products if he is happy with his experience.
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Co11&nit0 "er.ice not onl0 *el$" in de.elo$ing !&"ine"" good will !&t al"o lead" to "1all !&"ine"" longe.it0 - (s your business grows, you should focus on investing in community goodwill. 2ome suggestions could be, maing a small donation to community functions or by giving a helping hand to those startups of a different industry that are struggling. ;ou can also promote amateur artisans and musicians by holding exhibitions or concerts for them. >ocal residents would be willing to buy ticets that are fairly priced. ;ou should include other small businesses to help with local events. It will payoff with longterm sales growth and business referrals.
Goodwill is all about the nature of the business and the integrity and ethics with which you conduct your business. The understanding between your customers and you, your employees and you also contribute to the business goodwill. Consider goodwill as an honour that is impossible to imitate.
/4 T*e I1$ortance of Creating Goodwill wit* C&"to1er" /reating goodwill among people is important in almost every area of your life. 2preading goodwill maes people feel good about you, and it encourages them to spread goodwill to others. In business, creating goodwill can help you to build relationships that ensure the longterm success of your business. ;ou can create goodwill in a number of ways, from creating customer appreciation programs to going the extra mile when you are providing a service. In return, your business will reap a number of benefits.
1.
Enco&rage" /rand Lo0alt0:# 0hen you feel good about a company, you want to do business with them again and again. /reating goodwill with customers encourages brand loyalty by maing them feel good about doing business with you. 9ot only does it encourage customers to contact your company the next time they need a product or service that you offer, but it also encourages them to recommend your company to their family and friends, helping you to expand your customer base .
#. Enco&rage" Forgi.ene"":# Thin about how you feel when your neighbour brings you a big tin of cooies at /hristmas time. ;ou are probably less liely to be upset when that same neighbour pars in front of your yard or doesn3t bring in their newspaper, letting a pile form in the driveway. The same concept applies to your business. 0hen you create goodwill with your customers ? by going the extra mile, by exceeding their expectations, or by showing them personal attention ? they are more liely to overloo your mistaes when you mae them .
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et" 6o& A$art fro1 t*e Co1$etition:# 0hen customers are having a hard time choosing between companies who have similar products and price points, the goodwill you create can help set you apart from your competition and push them in your favour. 6aybe you went the extra mile by tracing down obscure information to answer a !uestion.
. I1$ro.e" t*e %al&e of 6o&r /&"ine"":# Investors understand the importance of goodwill and what it builds with customers. If your company has a positive reputation as a result of the goodwill it has built, it will increase its value. This will help you to attract more investors or secure credit more easily if you are looing to expand your operations, and it will help you to command more in a sale if you choose to sell your business. Building goodwill builds value.
AD7UTMENT FOR GOODWILL The concept of goodwill can be understood on the basis of its operational significance. Goodwill is what goodwill does. It brings in more customers to a firm, without much persuasion.
Goodwill ari"e" 1ainl0 on acco&nt of: -@ Good reputation of the owners, -# 4stablished popularity of products, -A 4ffectiveness of (dvertising, - avourable >ocality, -& 6onopoly and -' 9onavailability of similar products etc. In case a firm is not going and is not successful, there will be no value attached to goodwill+ if any value appears, then it will be not only intangible but also fictitious. Goodwill arises only if a firm earns extra profits, which is called super profits.
T*ere are two $oint": -@ 0hen one buys a business, he will be able to get profits in future only and is not concerned with the past profits at all. -# Goodwill is paid for the ability to earn super profits and not for ordinary profits. Goodwill is the value of reputation of a firm in respect of profits expected in future over and above the normal profits.
