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Answer briefly the following question:
Give the formula for valuation of goodwill by the Capitalisation of Average Profit Method.
Give the formula for valuation of goodwill by the Capitalisation of Average Profit Method.
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Solution
Formula for calculating goodwill by the Capitalisation of Average Profit Method is :Goodwill = Capitalised value - Net assets of business where,Capitalised Value = (Average Future maintainable profits/ Normal Rate of Return) * 100Net assets = All Assets - Outsider's Liability
Goodwill = Capitalised value - Net assets of business where,
Capitalised Value = (Average Future maintainable profits/ Normal Rate of Return) * 100
Net assets = All Assets - Outsider's Liability
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