CA FINAL valuation of Goodwill

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Ashish Srivastava (Querist)
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22 March 2017 when we use Average capital employed and when we use closing capital employed while calculating goodwill? I am totally confused plz give me the solution as my CA final exam are coming

CA Gopal Somani

CA Gopal Somani (Expert)
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22 March 2017 For Calculation of Average profit it is better to take average capital (if nothing specifically mentioned in que) because profit is earned during the whole period so taking average capital makes more sense.

Please let me know if you have any more questions.

Ashish Srivastava

Ashish Srivastava (Querist)
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22 March 2017 sir but in ICAI practice manual and Suggested ans. some question are solve on the basis of closing capital employed and some are on the basis of avg. capital employed.

CA Gopal Somani

CA Gopal Somani (Expert)
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22 March 2017 Can you please provide Q.Numbers from Practice Manual where you are having this issue?

Ashish Srivastava

Ashish Srivastava (Querist)
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22 March 2017 Q.No.12 , 13 Practice Manual 2016 edition

CA Gopal Somani

CA Gopal Somani (Expert)
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22 March 2017 Yeah..I checked those questions. This is really weird, Ideally Average Capital employed should be used in both the questions. you can check the same questions in some reference books.

I have found same questions in an online book, there they are using average capital employed in both the questions. Please check Problem number 4 on page no. 6.35 and problem number 5 on 6.36

https://books.google.co.in/books?id=d6IvogayVI0C&pg=SA6-PA15&lpg=SA6-PA15&dq=when+to+use+closing+capital+and+when+to+use+average+capital+employed+in+valuation+of+goodwill&source=bl&ots=UYx699wpMH&sig=0enoxWMT_vXcQQwBbheYSPKs4Qg&hl=en&sa=X&ved=0ahUKEwjiz_bA1erSAhWEv48KHQMdDOs4ChDoAQglMAI#v=onepage&q=when%20to%20use%20closing%20capital%20and%20when%20to%20use%20average%20capital%20employed%20in%20valuation%20of%20goodwill&f=false

Ashish Srivastava

Ashish Srivastava (Querist)
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23 March 2017 I understand sir but in exam we need to follow ICAI ans.. so what should I do?

CA Gopal Somani

CA Gopal Somani (Expert)
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23 March 2017 Well, it's not like that if something wrong is there in ICAI books we have to follow that. I would suggest check some other reference books and get the clear idea of how it is handled and follow the same. Because we are not sure that the exactly same question (Que no. 13-14) )will come in exam, so how would you decide that which capital employed to use. So, better to get a clear idea from other reference books and follow one method (I suggest it should be Average Capital employed).

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