Question

Answer briefly of the following question :

Give the formula for valuation of goodwill by the Capitalisation of Average Profit Method.

Answer 1

Goodwill =
Capitalised Average Profit – Actual capital employed/net assets
Where Capitalized Average Profit =`text { Average profit × 100}/text{ Normal Rate of Return }`

Actual capital employed = Assets (excluding purchased Goodwill and fictitious assets) – outside liabilities