Method of Valuation of Goodwill By Simple Average Profits Method

Simple Average Profit method is the simplest method for the calculation of the Goodwill of a concern. The formula: Goodwill = Average Future Maintainable Profits X No. of years’ purchase Steps: 1. Calculate Average Future Maintainable Profits of the given number of past years. 2. Multiply the Average Future Maintainable Profits with the number of years’ purchase. Example: Alpha Ltd. acquire the business of Beta Ltd. Goodwill for this purpose is to valued on 4 years’ purchase of average of previous 5 years’ adjusted profits. The profits for the last…

Impairment of Goodwill

What is impairment Loss? Some times it is realised that some assets do not have as mush recoverable value in the market as they are shown in the balance sheet of an enterprise. e.g. goodwill of an enterprise may be shown in the balancesheet worth 10 million dollors, but you actually sell it in the market its recoverable value is only 7 million dollars. The value at which the asset is shown in the balance sheet is called its carrying amount and the price at which it can be sold…

Accounting Standard (AS) – 26 : Treatment of inherent goodwill

According to the Accounting Standard (AS)- 26: 1.Internally generated goodwill, not being an identifiable resource which can be controlled by the enterprise and which can be measured at cost, should not be treated as an asset. 2. Difference between the market value of an enterp[rise and the carrying amount of its net identifiable assets may be due to many factors. Such differences can not be considered to represent the cost of intangible assets contolled by the enterprise. Hence it can not be shown as goodwill.