Q.2 - The following were the profits of a firm for the last three years.
Year ending
Profit (Rs.)
31st March 2016 4,00,000 (including an abnormal gain of Rs. 50,000)
315 March 2017 5,00,000 (after charging an abnormal loss of Rs. 1,00,000)
315 March 2018 4,50,000 (excluding Rs. 50,000 payable on the insurance of plant &
machinery)
Calculate the value of firm's goodwill on the basis of two purchases of the average profits for
the last 3 years.
Answers
Explanation:
Average profit of the firm = Total profit / Total Years.
= 400000+500000+450000 / 3
= 1350000 / 3
= 450000
Goodwill = Average Profit × Multiplication
= 450000 × 3
= 900000.
Answer: Average company profit is calculated as Total Profit / Years.
= 400000+500000+450000 / 3
= 1350000 / 3
= 450000
Goodwill means Multiplication of Average Profit
= 450000 × 3
= 900000.
Explanation: An immaterial commodity known as goodwill is connected to the acquisition of one business by another. It stands for worth that could offer the acquiring business a competitive edge.
The part of the purchase price that exceeds the total of the net fair value of all the assets acquired in the acquisition and the obligations taken on during the process is referred to as goodwill.
Aspects of goodwill include the worth of a company's name, brand image, devoted clientele, strong customer service, positive employee relations, and unique technology. One business may spend more for another due to this value.
An intangible commodity called goodwill is used to account for the excessive acquisition price of another business.
Goodwill includes private or intellectual property Property and brand awareness are difficult to measure.
By deducting the disparity between the fair market worth of the company's assets and obligations from its purchase price, goodwill is calculated.
Companies must at least annually evaluate the goodwill worth on their financial records and document any losses.
While the majority of other intangible assets have a limited usable life, goodwill has an endless existence.
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