If you want to give a new identity to your business or want to take it forward with name fame then you must know about Goodwill.
Because a business is successful when the goodwill of that business is good. Before understanding the Goodwill concept, you must read this post, what is my Asset and Liabilities, because Asset is a part of Goodwill.
So let me try to explain all these points in an easy way to you, what is Goodwill, Goodwill Meaning, how many types of Goodwill are there in this post of mine.
What is goodwill
Goodwill is the image of a business or says it has that reputation due to which it has survived in the market. This is his name, his brand, due to which he is earning good money in the market.
For example, You must have heard the name of Reebok, how old is Reebok, you must have known yourself that they provide quality service to your customer, because of which its name goes,
If you buy his product by his name only, you know that it is a brand of a particular company, then it will be great. So this will be good, we call it Goodwill.
Goodwill is an intangible asset, meaning that asset which we cannot see, only we can feel it.
But if we want to sell it, we can sell it. Just like we buy or sell an asset, we pay money for it, in the same way, if we buy and sell Goodwill which is an intangible asset, we can do both.
Goodwill Meaning with Example
Let us understand with an example if someone is an established firm, the value of all his assets is 2 lakh and the value of his goodwill is also 2 lakh, that means if you buy his business then he will sell 4 lakh business to you.
There is such a form which is not well established, it does not have a name, only it has land, it has just started a business, its asset value is 2 lakh,
This means when you buy his business, you will pay only 2 lakh. Because he does not have goodwill in the market. He has not provided any service to any customer.
If you want to explain it in more simple language, then any form wants to sell itself, then it will have to do valuation of its asset that how goodwill is in its market.
If a business wants to sell you, then it will ask for the value of its asset, the money of its asset as well as the money for its intangible assets Goodwill. You get to see the Goodwill calculation in the balance sheet of the company.
What are the types of Goodwill?
Goodwill can be divided into 2 parts 1. Purchase Goodwill 2. Self-generated Goodwill
1. Purchase Goodwill: If some other person comes and buys Reebok company, it means that he has purchased the business as well as has also bought the Goodwill of that business.
So this business is already established and another person comes and buys that business, then we will call that purchased goodwill as purchased goodwill.
2. Self-generated Goodwill: If we have established ourselves by not selling the business, running our own, and making Goodwill from the beginning, then we call it Self-generated Goodwill.
As Reebok he started his business from beginning till now it is running and Goodwill he generated Self he did not buy from anyone he has his own Goodwill on the market.
I hope you have liked my article What is Goodwill, Goodwill Meaning, How many types of Goodwill are there. If you have any dilemma in your mind related to Goodwill, then please tell by commenting. And do share this article with your friends as well.
