valuation of goodwill

Hi Rahul,

I have explained the problem with yrs 1991 and 1992 and according to the working note serial number.

WN 1. : In the YE, value of drs.- Debtors in the year end have to be re-instated at the year end rate. As per the prob, the value at the year end in Rs. is given, which if worked back u will know is not at the year end rate. eg 1991 : 880000/80000 = 11, whereas the ex rate is 11.20. Hence to rectify this,
1991 - 80,000*11.20-value at yr end rate minus 880,000- value taken in books. the diff Rs 16,000 is a profit. for 1992 it is +9000 Similarly work out for the other years.

WN 2: Profit TAKEN in the yr of collection: the prob states that P/L on ex fluctuation is recognised only in the yr of collection.i.e the diff between the booking value (Rs. 880,000 and the collection rate) and the collection amount was taken to p/l. pls note that the prob also says that the amounts were collected in the nexy yr. hence 1991's $80,000 was collected in 92  at that yrs ex rate...i.e @ 12.20...hence, p/l taken is calc as:
1992 : 80,000*12.2 -amt collected minus 880,000-booking value. which is 96000.
ans so on...

WN 3:Profit TO BE TAKEN in the yr of collection. Since as per WN1, the ex diff between the yr end rate and the booking rate was recognised, the ex diff on collection will be the diff between the collection rate and the re-instated ex rate i.e the closing rate of the PY. hence profit that should have been taken is,
1992: 80,000*12.2-collect amt minus 80,000*11.20-reinstated amt..or 96000-16000(as above) either way u will get 80,000.

the final adjustement is the net impact of the above 3. amts as per wn 1 and 3 are to be accounted and wn2 has been accounted. hence, for 1991 : Rs, 16,000 for 92: 9000(wn1)+80000(wn3)-96000(wn2 )= -7,000. same thing applies for the other yrs.

based on +or-, it has to be added or reduced from the profits of each yr.

hope that was comprehendable!