In this article we will discuss about:- 1. Definition of Goodwill 2. Nature of Goodwill 3. Features 4. Need for Valuation 5. Accounting Treatment. Definition of Goodwill: Goodwill is a thing easy to describe, but very difficult to define. It is the benefit and advantage of good name, reputation and connection of a business. It is the attractive force which [...]
The following are the methods of evaluating goodwill:- 1. Average Profit Method 2. Super Profit Method 3. Capitalisation Method 4. Annuity Method. Method # 1. Average Profit Method: Under this method goodwill is valued on the basis of an agreed number of years' purchase of the average maintainable profits. The maintainable profit indicates the adjusted profit. To get the adjusted [...]
Here is a compilation of top eleven accounting problems on valuation of goodwill and shares with its relevant solutions. Problem 1: From the following information find out Goodwill (a) as per annuity method, (b) as per 4 years' purchase of super profit, and (c) as per capitalisation of super profit method. Net profits for four years: I year Rs. 30,000; [...]