I have a doubt. While valuing goodwill, I see sometimes we use average capital employed & sometimes closing capital employed. Please explain as to how should we decide if we have to use Average capital employed or closing capital employed other than a case where it is specifically given in the question or a case where opening and closing capitals both are given.
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Valuation of goodwill
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We need to consider average capital only if in question opening capital details is not available then we will take the assumption that closing & opening capital are same.
There are 3 situations to consider Average Capital employed
1. Where it is specifically asked in the Question
2. Where information about Opening Capital & Closing Capital is given in the problem.
3. Where Future Maintainable Profit (FMP) is calculated based on Weighted Average of past profits & corrections are required for Capital Employed.
1. Where it is specifically asked in the Question
2. Where information about Opening Capital & Closing Capital is given in the problem.
3. Where Future Maintainable Profit (FMP) is calculated based on Weighted Average of past profits & corrections are required for Capital Employed.
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