Goodwill means the CAPACITY of a firm to earn SUPER NORMAL PROFIT from OPERATING ACTIVITIES and that Super Normal Profit should be CONTINUED in FUTURE


Goodwill is an Intangible Fixed Asset.

Goodwill means

The CAPACITY of a firm to earn SUPER NORMAL PROFITS from OPERATING ACTIVITIES andThat Super Normal Profit should be CONTINUED in FUTURE.

This Capacity can be generated by the organization itself (called Self Generated Goodwill) or

It can be purchased from other organization having goodwill (called Purchased Goodwill).


It arises in an organization because of the following reasons.

Good location Good quality of products Good after sales service Good environment at the place of business Good behaviour of the staff with the customers Good variety of products Old Company (In the business from last so many years)Good reputation in the market.


Do you think, that a company working for last 50 years, having good reputation in the market, providing good quality products will definitely have goodwill?


You may wonder that the answer of the above question is "NO".

Because there may be a case where an organization possesses all of the above mentioned features, but have no goodwill because it is possible that the organization could not earned any Super Profits.

On the contrary if an organization has goodwill, earning super profits, then it must have any feature out of the above mentioned features.


It is the premium value paid by a company on acquisition of another company.

Disclosure (as per AS-26):

The purchased goodwill should be shown in the books at COST.The cost of self generated goodwill is INDETERMINABLE hence should be valued at NIL.Goodwill is not recorded or reported in the books unless something is paid to acquire it.