WHILE ARRIVING GOODWILL THROUGH NET ASSETS METHOD -
1- IN ONE CASE THEY ARE CONSIDERING CAPITAL EMPLOYED (ASSETS - LIABILITIES) BUT
2- IN SOME CASES IT IS PUBLISHED AS AVERAGE CAPITAL EMPLOYED (ASSETS-LIB-1/2 C.Y PRFT)
WHEN SHOULD WE CONSIDER AVG.CAP.EMPLOYED - A BIG CONFUSING QUESTION FOR ME
PLS HELP ME OUT
method of capital employed is computed as given the question so it depends as what is asked in the qustion or if the parameters such as CY profit is given then average capital employed needs to be followed.
Thank you....
But in every problem Current year profit is mentioned
Can we adopt straight away Avg cap. employed?
Hello Vamshi Raghavendra,
If nothing is specified in the question regarding this follow following suggestions as accepted by ICAI for examination purposes-
We compute goodwill using simple Capital Employed in cases where we arrived Future Maintainable Profit (Average Profit) by weighted average method.
And
In other cases we use Average Capital Employed.
Hope this settles your doubts.
Regards
Thank you Ashish.......
SO FINALLY IT DEPENDS UPON FMP CALCULATION : IF IT IS BY WEIGHTED AVG MTHD THEN SIMPLE CAPTIAL EMPLOYED
IF FMP IS NOT WEIGHTED AVG THEN WE SHOULD COMPUTE BY AVG CAPITAL MTHD .
Hope i am correct,,, Pls dont resist to reply me...
Great explanation
Thank you so much ASHISH PATHAK
Its always average capital employed, since thats the right way to approach it. In absence of information regarding current profit, then we may opt for terminal capital employed.
yup..
always we have to take average
it shows true image
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