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Valuation of goodwill

GITA RAYATATHA (STUDENT) (98 Points)

22 May 2013

What is current years rectified profit for the purpose of calculating average capital employed, does it consider adj for current asset and if yes so when?

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Rama chary Rachakonda (Master in Accounts & Lawyer email ID:ramachary64@gmail.com voice no:9989324294) (3293 Points)
Replied 24 May 2013

Originally posted by : GITA RAYATATHA
	What is current years rectified profit for the purpose of calculating average capital employed, does it consider adj for current asset and if yes so when?

Before calculating the average profits the following adjustments should be made in the profits of the firm:

a. Any abnormal profits shoulld be deducted from the net profits of that year.

b. Any abnormal loss should be added back to the nat profits of that year.

c. Non operating incomes eg. income from investments etc should be deducted from the net profits of that year.

Mohammad Asif (chartered accountant) (191 Points)
Replied 26 May 2013

rectification does not include revaluation of current assets and liabilities it simply takes into account errors for example: let us say PAT is 300000 Rs tax rate is 50% and depreciation of Rs. 10000 has been less provided for then the procedure is as folows

PAT Rs 300000

Add : Tax Rs 300000

PBT Rs. 600000

Less: Rectification of errors

(Depreciation) Rs.10000

Rectified profits Rs 590000

half of rectified profits after tax = 590000 x .50 x .50 = 147500 Rs.

When question specifically states that any item has to adjusted in books then it is a error or specifically states that it is a error and the above procedure will apply.

if still not clear let me know i will show you the same type of question.

regards

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