while calculating capital employed why non-trade investments are excluded?
Gowhar muslim (student) (33 Points)
09 August 2010while calculating capital employed why non-trade investments are excluded?
triumph-CMA
(Chartered Accountant)
(503 Points)
Replied 10 August 2010
I thinkyou are calulating capital employed fro the computation of goodwill.
If this is so then the answer is here: -
First of all we have to know what is goodwill.
Goodwill is the extra earning capacity of any businees.
Since goodwill contribute to earning of only operating profits of a concern. Hence, while computing goodwill only operating items are considered.
All methods for the computation of goodwill concentrate on operating profits.
Any non operating income and nonoperating expense is excluded e.g., interest on investment.
Similarly while computing capital employed for the purpose of ascertainment of goodwill only operating assets are considered.
Therefore nontrade investments are excluded as they do not effect the operating income of the business. On the other hand we can say that goodwill do not effe the earning of non operating profits.
Arpita
(STUDENT)
(55 Points)
Replied 19 September 2010
Thanks Dhirendra Sir,
At the time of calculation of goodwill,sometimes average capital employed is considered and sometimes closing capital employed .
I got confused,Please clear my doubt...
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