Valuation of goodwill

1.Can u repeat the question

2.Take the difference and deduct  

3.Yes,add back that portion of interest 

First of all closing capital employed and terminal capital employed are one and the same

Miscallaneous expenditure is to be added back to PBT to arrive at adjusted profit

Loan repayment not sure that it requires adjustement to PBT to arrive at adjusted profit  as it is of operational nature only 

waiting for other experts and students to comment 

This is the rule when we have to use closing capital employed or average capital employed

If the given question specifies to use either closing capital employed or average capital employed use it accordingly as per question

If the question does not specify then FMP is the basis

If FMP is calculated using projection method -use closing capital employed

If FMP is calculated using Trend Line use Closing Capital employed

If FMP is calculated using Weighted Average use Closing Capital employed

If FMP is calculated using Simple Average use Average Capital employed

Hope this calrifies your doubt on what circumstances you have to use closing capital employed and Average Capital Employed 

Hi Parth,

I dont think there is any difference between "closing capital employed" and "terminal capital employed". Both are same. The formula what you have given i.e. closing capital employed+1/2 of dividend distributed-1/2 of current year profit is NOT for terminal capital employed. Infact its for "average capital employed". The simple formula for Avg Cap employed is [Opg Cap Emp + Clg Cap Emp] / 2. The formula what you have given is just an alternate formula. So both are same. Pls try with a small example for this. You can find out.

The rules given by Sivaram are good. You can follow that.

Thanks.

Formula for Average capital employed are

Opening capital employed+closing capital employed/2-This is the prefered method

But when FMP is calculated using Simple average

then use the formula for Average capital employed as Closing capital employed -1/2 of Rectified PAT

1. Tangible CE means Closing CE (Avg is a relative term n hence Avg CE is intangible)

2.  Treatment f Fictitious w/off will be same as in d case f Goodwill amortisatn ie add back d amt f fictious asset w/off while calc FMP.

3. So far as i think. NO adjustment reqd 4 repayment f loan

any one have Projections for 2 financial years formats of construction comany, please send this mail id sivagogireddy @ gmail.com

Some one ask me three question Can anyone help me to get answer -;

1. In Avg profit method why we multiply avg profit to given data . Eg. Avg profit x 3 times.

2. In weighted avg method why we multiply profit into no. of weights.

3. Why Avg profit method is called Year purchase method.