BUSINESS ADMINISTRATION
FINANCIAL ACCOUNTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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I, II
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III, IV
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I, II, III
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I, III, IV
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Detailed explanation-1: -Simple Average – In this process, goodwill evaluation is done by calculating the average profit by the number of years it is called years purchase. It can be calculated by using the formula. Goodwill = Average Profit x No. of years’ of purchase.
Detailed explanation-2: -Goodwill arises when a company acquires another entire business. The amount of goodwill is the cost to purchase the business minus the fair market value of the tangible assets, the intangible assets that can be identified, and the liabilities obtained in the purchase.
Detailed explanation-3: -The formula for goodwill is: Goodwill = (Consideration paid + Fair value of non-controlling interests + Fair value of equity interests) – Fair value of net identifiable assets.
Detailed explanation-4: -Using capitalization of super profits method calculate the value the goodwill of the firm. Ans: Goodwill = Super profits x (100/ Normal Rate of Return) = 20, 000 x 100/10 = 2, 00, 000.