Question

weighted average of calculating Goodwill is used when ​

Answer 1

Answer:

Weighted average profit method is used to evaluate the Goodwill when there is an increasing on decreasing trend in past year profits of the firm. In such situation, it is considered to be better to give a higher weightage to the profits to the recent years than those of the earlier years.

Answer 2

The weighted average of calculating Goodwill is used when:

• Profits from the previous few years are averaged and adjusted for any predicted changes in the future in the average technique of assessing goodwill.
• Depending on the conditions, either a simple average or a weighted average can be used to average prior profits.
• If there is a clear upward or downward trend in profits, it is preferable to give the profits of recent years more weight than those of previous years.
• However, if there is no profit pattern, it is preferable to use the simple average.