Valuation of goodwill

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Querist : Anonymous

Querist : Anonymous (Querist)

25 April 2016 Hey I have a doubt regarding methods used to solve the valutaion of Goodwill eg
1) When to take Avg Capital Employed
2) When to take Capital Employed
In PM of ICAI uses randomly sometime Capital Employed and Avg Capital Employed
Is there any method or hint regarding the same??
3) While calculating Avg Capital Employesd why Dividend paid is Added back??
Plz solve this. Asap

CA Prateek Garg

CA Prateek Garg (Expert)

25 April 2016 It depends on method used to compute the average profits. If Profits are computed using simple average then one should take average capital employed. if profits are computed using weighted average then one should take closing capital employed.

However above principle is to be used only when question does not specifically provide for the method to be used. if question specifies the method directly or indirectly then one should use that method only. sometimes question does not does not specify the method directly but language of question indicate a particular method hence question must be read carefully.

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Querist : Anonymous

Querist : Anonymous (Querist)

25 April 2016 And what about the Divided?? Why the same is added back while calculating avg capital employed??

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