Goodwill

Goodwill #DEFINITION OF GOODWILL

#KEY FACTORS AFFECTING GOODWILL

#VALUATION OF GOODWILL

#AMORTIZATION OF GOODWILL

DEFINITION OF GOODWILL Intangible

assets

Established business

Good nameor

Reputation

Makes more profit

KEY FACTORS AFFECTING GOODWILL

*Favorable location * Well-known products

* Good reputation * Good customer relation

* Good employees

VALUATION OF GOODWILL Goodwill = Selling price as a going concern – Fair value of separate net

assets

FV. of separate net assets = Assets - Liabilities

Merger or liquidation

VALUATION OF GOODWILL Calculation of Goodwill

1 -Average profits method

2 -Super profits method

1- Average profits method

Goodwill

Number of years

of purchase

Average

profits

The profits of a number of years

The number of yearsProfit for the year + Abnormal Loss -

Abnormal Gain - Non-operating Incomes

Example 1Profits for three

years: $100000 f0r

2002 $200000 for

2003 $300000 for

2004

number of years of purchase

4 years

Average profits = 100000+200000+300000

3 =200000

Goodwill = 200000 x 4

=800000

2- Super profits methodGoodwi

llSuper profit

Number of years

of purchase

Super profit = Actual profits – Normal profits

Normal profits = Capital working x Rate of return / 100

Example 2 $1000000 Capital

working20 % Rate of return

$230000 actual profits

number of years of purchase

4 years

Normal profits= 1000000 x 20%

=200000Super profits=

230000 – 200000 =30000

Goodwill =30000 x 4 =

120000

AMORTIZATION OF GOODWILLGenerally Accepted Accounting Principles

(GAAP)

International Accounting Standards (IAS)

the straight-line method 20 years

Conclusion

The goodwill represents the value of the company in the business world and describe

reputation earned .

Thank you for your attention

Floor open for discussion