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Need for the Valuation of Goodwill

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The valuation of the Goodwill of a sole proprietorship is done when the business is being sold, but in case of a partnership firm and a joint stock company goodwill can be sold to some another business entity without selling the whole business. Hence when you are going to sell the goodwill of your business, you should be assured of the value of your goodwill at that particular time.

In case of a Partnership firm, there is a need for the valuation of Goodwill of the Firm in the following cases:

1) In the case of a change in the profit sharing ratio of the firm;

2) In case of admission of a new partner;

3) In case of retirement or death of an old partner;

4) In case of Sale / amalgamation of the firm.

In case of a Joint Stock Company, Goodwill is valued in the following circumstances:

1) In case of amalgamation of two or more companies;

2) In case of taking over of business of a company by another company;

3) In case of taking over the business of the company by Government;

4) In case of conversion of shares of one class into another;

5) If a company wants to acquire conrol of another company;

6) In case of valuation of shares of the company for taxation purposes, if stock exchange quotations are not available.

Next is  Methods of Valuation of Goodwill