What is Goodwill Video Lecture - Accountancy Class 12 - Commerce

good work we now come to goodwill in
partnership accounts two critical areas
one was perfect share English and now
goodwill
if these two are master most of
partnership is taken care so let us
understand what is good what is good if
we take an example let us take a and B
two businesses both businesses are
engaged in the manufacture of ships they
both are use the same kind of machinery
the same kind of medium and therefore
the cost of manufacturing is the same so
let us say their cost of manufacturing
of each shoe comes to these 300 now when
a sells the goods he takes a marginal
say 20 percent and sells these shoes for
360 B on the other hand has a hundred
percent margin and sells these for $600
with only so much information in hand
which kind of shoe would you buy you
would usually prefer this shoe with a
cost of 360 since everything else
appears to
see let us now see that these shoes are
called
collages and these shoes are actually
three boxes once these names have been
brought in it is quite possible that
many of us would prefer to buy these
shoes these Reebok shoes for 600 rupees
instead of the Kolo shoes for 360 that
is the effect of good way so what is
good with goodwill may be defined as a
good reputation the good name of
business
this might arise over a period of time
because of maybe the managerial
expertise maybe because of the quality
of the product
maybe because of its location alignment
age whatever reason a business might
have established a good reputation a
good name and that is the value of
goodwill it may also be called a
business's profit-making ability its
ability to generate profits and extra
profits in the coming years goodwill is
just a good name it doesn't have any
physical physical presence it is what is
called an intangible asset it is what is
called an intangible asset because it
doesn't have a physical presence we
cannot touch see or feel it but it is
there it exists
and through we cannot raise this asset
in our books in the sense as per
Accounting Standards goodwill cannot be
brought into the books unless you are
actually purchasing good now what
happens is in a partnership suppose
there are three partners a B and C and
they have established a business with
good repute over a period of 20 years
they'll now admit a new partner D if
after admission of thee tomorrow they
were to sell this business a large part
of the value of the business money that
they will get will be on account of
goodwill which would be shared by all
four of them though D has only just come
in and has not really helped in building
up this good so what is usually done is
when a new partner is coming in a rough
and estimate evaluation of goodwill is
made and the partners and the existing
partners their capital accounts are
increased in proportion to D who is
coming in so that they get the benefit
of goodwill so that that capital
accounts have been increased and
tomorrow if the business is to be
liquidated is to be sold their capitals
reflect a portion of the goodwill that
they have helped to create over the last
20 minutes so good way is generally
required to be valued on admission on
retirement or death or whenever there is
a change in the profit sharing fresh
so what is good with goodwill is the
good reputation a good name of the
business and intangible asset which has
some value but it is it may be difficult
to put a precise value to it we cannot
see this asset physically feel this
asset and it requires to be valued
normally whenever there is a
reconstitution of the firm when there is
a change in the profit sharing ratio or
partner is admitted and therefore there
is a change a partner retires and
therefore there is a change all on the
death of a partner and therefore a
change in the profit sharing fish