Goodwill is an intangible asset that represents the reputation and image of a business. It is an important factor in determining the value of a business. Valuation of goodwill is necessary for various reasons, which are discussed below.



When a business is sold, the value of goodwill needs to be determined to arrive at the fair market value of the business. The purchaser is interested in the value of goodwill as it represents the future revenue-generating capacity of the business. Valuation of goodwill is necessary to ensure a fair price is paid for the business.



In a merger or acquisition, the value of goodwill is determined to arrive at the purchase price of the business. The acquiring company is interested in the value of goodwill as it represents the value of the existing customer base and reputation of the business.



When a partnership is dissolved, the value of goodwill needs to be determined to arrive at the fair market value of the partnership. Valuation of goodwill is necessary to ensure that each partner receives a fair share of the partnership assets.



Goodwill is an intangible asset that is recorded on the balance sheet of the business. The value of goodwill needs to be determined to ensure that the balance sheet provides an accurate representation of the financial position of the business.



Valuation of goodwill is necessary for tax purposes such as calculating capital gains tax or estate tax. The value of goodwill needs to be determined to ensure that the correct amount of tax is paid.



In conclusion, valuation of goodwill is necessary for various reasons such as sale of business, merger or acquisition, partnership dissolution, financial reporting, and tax purposes. It is an important factor in determining the value of a business and ensures a fair price is paid for the business.

The valuation of goodwill also becomes necessary, if the shares have to be valued on the basis of intrinsic value, market value or fair value and if the stock exchange quotation of the value of shares of a company is not available. 4. For taxation purpose such as wealth tax also, the valuation of goodwill is necessary.