How accountants understand good will in credit
Accountants, being less philosophical than lawyers, look at goodwill more simply. A short accounting definition of goodwill is as follows: ‘Goodwill is the difference between the total value of a business and its net tangible asset value’. Although this definition does not necessarily make the concept of goodwill any easier for business people to understand, it does make goodwill easier to value, especially after a business has been sold. For example, assume a retail business with three shops is being sold for £300000, (excluding the real property). The value of the fixtures and
fittings in the shops is £50000 based on their written-down value and the value of the stock is £175 000 valued at cost. The value of goodwill would be: £300000 – (175000 + 50000) = £75000. Having got some of the basic concepts out of the way, we will now turn to the consideration of some valuation methods.
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