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Valuation of goodwill

Others 318 views 2 replies

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.

 

Replies (2)

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.


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