Leverage affect means " G/wll(debt considered as debt)-G/wll(debt considered as capital)
Suppose your Balance Sheet shows Debt @ 10%= 100, C.liab= 50 and Total assests= 250 and FMP=25 NRR=10%
G/wll(debt considered as debt)
Then To calcultate g/wll you need to calculate Capital emplyed which comes as 250-50-100= 100.
calc. G/wll : 25/10% -- 100 = 50
G/wll(debt considered as capital)
Then To calcultate g/wll you need to calculate Capital emplyed which comes as 250-50= 200.
From capital emplyed debt is not deducted as debt is considered capital. Simply saying We want to calculate goodwill where we assume the company is debt free..
As debt isnot considered to calc g/wll so we have to takeout the interest part from the profit. so add back interest(net of tax). FMP:- 25+10=35
G/wll: 35/10% -- 200= 150
Summary: Simple Language main: Goodwill ka Value Kitna Hoga agar company debt main hain ya debt mai nahi hoga.. & Leverage affect means How much the value changes considering the both cases.
It is also called TRADING ON EQUITY. I hope you remember the PCC/IPCC theory of Costing & FM
Hope you understood.