Goodwill valuation must reflect business realities, and a two years' purchase basis was upheld as fair and reasonable.

Goodwill valuation must reflect the nature and circumstances of the business, including its standing, location, profit potential, and the stability of its earnings source. On the facts, the firm had no exclusive agency, depended materially on the manufacturer's discretion, and the deceased held a 56% share; in that setting, valuation on two years' purchase of super profits was fair and reasonable. The Tribunal's refusal to adopt a three years' purchase basis was therefore upheld as not unreasonable.

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Issues: Whether the Tribunal was right in valuing the deceased's share of goodwill on the basis of two years' purchase of super profits instead of three years' purchase.

Analysis: Goodwill valuation depends on the nature and circumstances of the business, including its standing, location, profit-making capacity, and the extent of stability or uncertainty in its source of earnings. On the facts, the firm had no specific agency in its favour, its business depended substantially on the discretion of the manufacturer, and the deceased's share in the firm was 56% at the time of death. The authorities cited also showed that goodwill had been valued on a basis ranging from one to two years' purchase. In these circumstances, the Tribunal's approach could not be said to be unreasonable or unfair.

Conclusion: The Tribunal was correct in holding that the deceased's share of goodwill should be assessed on the basis of two years' purchase of super profits.

Ratio Decidendi: Valuation of goodwill must be determined on the facts and commercial realities of the business, and a court will uphold a two years' purchase basis where the surrounding circumstances make that method fair and reasonable.

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