What Is Goodwill? How Does It Affect Net Income?

Goodwill is the value of reputation of a irm in respect of the profits
expected in future over and above the normal rate of return, which other
companies can earn. Over and above the normal rate implies that the
firms capability to earn more profits when compared to other firms
because of its good brand name, locational advantage, good customer
relations or possession of a unique patent right. The impact of goodwill
on the net income is that, as good will is amortized the amount of
profits get reduced. This further reduces the balacne of reserves and
surplus amt in the balance sheet.