(I)profits: 2012-40,000
2013-50,000
2014-60,000
(ii) non-recurring income of ₹4000 is included in the profit of 2013
(iii)profits of 2012 hav been reduced by ₹6000 bcoz goods were destroyed by fire
(iv)goods hav not been insured but it is thought to insure dem in future. The insurance premium is estimated at ₹400 per yr
(v) reasonable remuneration of the proprietor of business is ₹6000 per year but it has not been taken into account for calculation of above mentioned profits
(vi)profits of 2014 include ₹5000 income on investment.
Calculate Goodwill on the basis of 2 years purchase of the average profit of last 3 years.
* please explain me the calculation for net profit*
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valuation of goodwill
Replies (7)
Valuation of goodwill is based on Future maintainable profit(FMP)
FMP = Profit (+/-) Àdjustments of Non recuring exp, Non recuring income, Unrecored expense, Income from investment.
Adjusted Profit(Future maintainable profit)
2012: 40000+6000-400-6000=39600
2013: 50000-4000-400-6000=39600
2014: 60000-400-6000-5000=48600
Avg Profit: (39600+39600+48600)/3 = 42600
Gw. = 42600×2 = 85200
FMP = Profit (+/-) Àdjustments of Non recuring exp, Non recuring income, Unrecored expense, Income from investment.
Adjusted Profit(Future maintainable profit)
2012: 40000+6000-400-6000=39600
2013: 50000-4000-400-6000=39600
2014: 60000-400-6000-5000=48600
Avg Profit: (39600+39600+48600)/3 = 42600
Gw. = 42600×2 = 85200
Can you help me with the valuation of goodwill of a company? and the rate?
Is that IndAS, goodwill is impairment tested and written down to nil in final accounts using equity method. The above goodwill valuations like average profits, super profits, annuities, capitalisation methods are not mentioned. Maybe they do internal goodwill calculations.
So according to the internal goodwill calculations goodwill does have some value on the balance sheet too?
No. Expenditure made to get internal goodwill is expensed because no one knows what amount benefits they can reap ie, there is no reliable meausrement and can't ifentify how they got profits from. For example, you spend money to develop business relationships, if your business grows, you cannot identify that the business grew because you spent money and you will not know how much amount u got as profits because of your expenditure. The above valuations can be used for Pvt company or partnerships
What about public companies? Does the above example also apply to public companies?
Public companies are listed, so equity method is used
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