Question

13. Goodwill as per purchase of average 1 point
profit method is equal to
*
O (a) Average Profit
O (b) Average profit > Amount of purchases
O
(c) Average Profit * Number of years'
purchases
0 (d) All of the above​

Answer 1

Goodwill as per purchase of average profit method is equal to

(a) Average Profit

(b) Average profit > Amount of purchases

(c) Average Profit * Number of years'purchases

(d) All of the above​

The correct answer is :

(c) Average Profit * Number of years'purchases

Explanation :

Goodwill is calculated by multiplying the weighted average profit by the number of years of purchase.

If the profit remains constant over a period of few years then equal weighting should be given for all the years which is simple averaging method.

Goodwill refers to an intangible asset that is associated with the mutual dealings of one company with another. Goodwill is that portion of the purchase price that exceeds the sum of the net fair value of all assets purchased in the acquisition and liabilities assumed in the process.

#SPJ3

Answer 2

Answer:

Explanation:

Goodwill is the value of a company's reputation built over time in relation to expected future profits that exceed normal profits.

Methods of Valuation of Goodwill

Average profit Method

In this way, goodwill is assessed by the agreed number of years of acquisition of average profit over the past few years. Goodwill = average profit x years of purchase.

Weighted Average : In this method,  goodwill is assessed at the agreed number of years of acquisition using the weighted average profit over the last few years. Weighted averages are used when earnings tend to rise or fall, giving the highest weight to year-to-date earnings.

Goodwill = Weighted Average Profit x Years of Purchase

Weighted average gain = total gain x weight / total weight