What You Will Learn!
- Valuation of Goodwill
- Meaning of goodwill
- Types or classification of Goodwill
- Methods of valuation of Goodwill
- Average Profit Method
- Super Profit Method
- Capitalization Method
- Annuity Method
Description
Valuation of Goodwill
Valuation of Goodwill Contents :
1 Goodwill is reputation of business
2 It is payment for nothing
3 Increase in profit earning capacity of the business
4 Goodwill is intangible assets
5 Goodwill is “real” it is not fictitious
6 Shown in the assets side of balance sheet under the heading non current assets
Meaning of Goodwill
Goodwill is real it is not fictitious
Example of fictitious assets :-
1. Expenses on issue of share/debenture
2. Discount on issue of share/debenture
3. Loss on issue of share/debenture
4. Preliminary expenses
5. Underwriting commission etc.
Types or classification of Goodwill :
(1) Purchased Goodwill
(2) Self goodwill/Non purchased Goodwill
Nature of Goodwill :
1) Cat goodwill = value high
2) Dog goodwill = value low
3) Rat goodwill = value zero
4) Strange goodwill = = value strange/uncertain
Factors affecting the value of Goodwill :
i. Internal factors
ii. External factors
Methods of valuation of Goodwill :
1. Average Profit Method
Meaning of Average Profit method
A. Simple Average Profit Method
B. Weighted Average Profit Method
2. Super Profit Method
Meaning of Super Profit Method
A. Simple Super Profit Method
B. Weighted super profit method
3. Capitalization Method
Meaning of Capitalization Method
Valuation of goodwill by capitalization of average profit method
Valuation of goodwill by capitalization of super profit method
4. Annuity method
Meaning of Annuity method
Valuation of goodwill by Annuity method
(1) If annuity rate is less than ₹ 1
(2) If annuity rate is more than ₹ 1
Some Important Questions for Practice
Who Should Attend!
- Any Student who pursuing in B,com M,com BBA MBA 11th & 12th Commerce C.A. C.S. and C.M.A.
