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Annuity method under partnership.

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06 May 2010 Hello.I'm preparing for cpt june 2010 test. Under partnership chapter I unable to value the goodwill in annuity method.plz tell me the clear steps for ascertaining the value of the goodwill under annuity basis.Thank you.
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Gajendra R. Tiwari

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Gajendra R. Tiwari (Expert)
06 May 2010 for calculation annuity value please follow these steps:

1) Calculate Average Profit

2) Calculate Normal Profit

3) Calculate Super Profit(Average Profit - Normal Profit)

4) Suppose, Goodwill is to be valued at 5 years' profit purchased and normal rate of return is 15% then goodwill under annuity method will be:

Goodwill = super profit * annuity value after 5 year @ 15% (search in annuity table it will be 3.3522)

you are done. Hope u understand the method.
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