Valuation of Goodwill and calculation!! question asked in many companies,try to remember the methods..
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Answer Posted / bjanmejai
Valuation of Goodwill
1. Super profit Method
2. Capitalization method
Factors for valuing GW
1. FMP
2. CE
3. NRR
Points to be considered while Calculation of FMP
1. Only Profit of those years with normal activity to be considered (years of Abnormal activity excl.)
2. Profits – Operating profits (non-operating items excl but if they are recurring to be incl)
3. Income from Trade Investment only to be considered (NTI not to be considered)
4. Fluctuating Profits – Simple Avg
5. Profits with a trend - Weighted Avg
6. If fixed asset is revalued – ignore p/l on revaluation , if other assets(liab)- consider
7. But consider addl. depn on the revaluation o FA
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Alex’s Trial Balance at 31 December 2015 Dr (BWP) Cr (BWP) Capital 18 240 Bank overdraft 3 000 Fixtures and fittings 14 100 Provision for depreciation-fixtures and fittings 8 800 Inventory 14 200 Trade receivables 12 300 Trade payables 9 900 Revenue 110 000 Purchases 51 000 Discount received 1 800 Wages and salaries 26 000 Sundry expenses 34 000 Discount allowed 620 217 540 ======= 86 420 ======== Required: i Prepare the corrected trial balance at 31 December 2015. (7 marks) ii Show any difference you find as a balance on an appropriate account.
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