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Business valuation

mohit saxena (student) (25 Points)

04 November 2014

purchase goodwill is a part of capital employed or not In study material it's a part of capital employed but same qus in praveen sir notes is not a part of capital employed

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nitesh jaisinghani (student) (24 Points)
Replied 04 November 2014

I have also doubt in this point

QLI Coaching for CA CS (www.qli.co.in) (539 Points)
Replied 04 November 2014

Analysis

1) Capital Employed may be calculated by following both ways :

Capital Employed = Paid up share Capital + Reserves & Surplus + Long term Liabilities

Capital Liabiliites = Total of Assets- Current Liabilities

2) Goodwill is appearing in the balance sheet that means it must be purchased goodwill . Since, self generated goodwill is not to be recognized in the Balance Sheet. Goodwill is an intangible asset. Therefore, this item will be included in Total Assets.

Conclusion

From the above discussion, it is clear that purchase of goodwill will form a part of Capital Employed.

-QLI

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