Question

Why is goodwill not recognized as a loss? please type the answer.

Answer 1

Goodwill is an intangible asset which represents non-physical items that
add to a company’s value but cannot be easily identified or valued.
To calculate goodwill, subtract the market value of the acquired company’s assets and liabilities from the price the company was purchased for.

For example, business A is purchased for £100,000 by business B.
Business A had assets worth £90,000 and
liabilities worth £15,000. Using the following formula,
we can value goodwill at £25,000:

£100,000 – (£90,000 – £15,000) = £25,000

Because goodwill is made up of components with subjective values,
there is always a risk that the purchasing company will overvalue goodwill.
If this happens, goodwill should later be written down to reflect a more accurate value.

Reasons why good will is not loss:
1.Although they cannot easily be calculated,
intangible assets significantly contribute to a company’s success and value.

2.Goodwill is important to increase your customer base but also retain your old clients.
This happens through word-of-mouth publicity and recommendations.
Many customers return to you if you’ve provided them good customer service
and have established a good relationship with them.

3.Investors are attracted to businesses that have goodwill.
The goodwill of your firm is equivalent to solid cash.
It will help you obtain loans from banks with ease knowing that you are a valued customer.

4.New avenues open up; opportunities are created through business networks
if you have longstanding business goodwill.

5.Another advantage of goodwill is that, even if you make a blunder,
your customers are willing to forgive you when you apologize.
This is because of the trust they have in your business from previous experiences.

6.When you want to sell your business at any point in time,
your reputation and the goodwill of your business will attract many potential buyers.
You will be able to sell your business for a good amount.