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Financial reporting- goodwill question

Shruti (CA Student) (178 Points)

06 February 2015

Hey, I had a query in Valuation of Goodwill if someone could resolve it than I would be really thankful.. Ques- When to calculate Average Capital Employed?? According to Praveen Sharma Sir, if one year information is given:- 1) FMP is calculated by weighted average then calculate Closing capital employed. 2) FMP is calculated on simple average method then calculate Avg capital employed. I want to confirm this as in in PM different solution is given..

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shriram (CA in Practice) (86 Points)
Replied 06 February 2015

FMP calculation is as simple as past year's average (which is expected to repeat in future). You need not worry about Capital employed in that.

But to find out Industry expected return => you may have to use Closing Capital employed x Industry return % (ICAI has suggested the closing capital employed always and has given the avg CE as an alternative answer). In my view, closing CE sums up everything

K Shriram, FCA

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