Scribd
Upload
18 views10 pages

Methods For Valuation of Goodwill

bsnshuhhhbbv. gahaha

Uploaded by

Vedansh Jain
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
18 views10 pages

Methods For Valuation of Goodwill

bsnshuhhhbbv. gahaha

Uploaded by

Vedansh Jain
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 10

Methods

for
valuation
of
Goodwill
Meaning of Goodwill
• It is a good name or reputation earned by a firm.
• It is an intangible asset.
• It is the value of business over and above the value of its
assets.
• It is the difference between the purchase price and the
value of net assets.
• It has a positive impact on the future turnover and profits
of the business.
Factors Affecting Valuation of
Goodwill
1. Good Public Relation
2. Regular Customers
3. Quality Product in Reasonable Price
4. Management Skills
5. Location of Business
6. Good Relation with Suppliers
7. Employees
Methods of Valuation of
Goodwill
1. Simple Average Profit Method
2. Super Profit Method
3. Weighted Average Method
4. Capitalization Method
a. Capitalization of Average Profit Method
b. Capitalization of Super Profit Method
1. Simple Average Profit Method
• Goodwill = Average Profit * Number of year of purchase

• Average Profit = Total Profit / Number of Years

• Number of years of purchase means the number of year


for which the firms is likely to earn the same amount of
profit.
Things to consider before calculating the
average profits :-
1. Any abnormal profit should be deducted
from the net profits of that year.
2. Any abnormal loss should be added back to
the net profits of that year.
3. Non-operating incomes e.g. income from
investments should be deducted from the net
profits of that year
2. Super Profits Method
• Goodwill is calculated on the basis of Super Profit i.e. the excess of actual
profits over the average profits.
• Formula:-

1. Goodwill = Super Profit * No. of years purchase

2. Super Profit = Average Profits - Normal Profits

3. Normal Profits = Capital Employed * Normal Rate of Return / 100


3. Weighted Average Profit
method
• This method is the modified version of the simple average profit method.
In this method, each year’s adjusted profits are multiplied with the
respective number of weights in order to calculate the total product. The
total of products is then divided by the total of weights to calculate the
weighted average profits. Thereafter, the weighted average profits are
multiplied by the number of years of purchase.
• Formula :
• Weighted Average Profits = Total Products o Profits / Total of
Weights
• Goodwill = Weighted Average Profits * No. of years of purchase
4. Capitalization of Profit
Method
a. Capitalization of Average Profit Method
= Average Profit / NRR * 100

b. Capitalization of Super Profit Method


= Super Profit / NRR * 100
Thank You

You might also like

pFad - Phonifier reborn

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


Alternative Proxies:

Alternative Proxy

pFad Proxy

pFad v3 Proxy

pFad v4 Proxy