valuation of goodwill class 12 | formulas | all in one .

meaning of good will :

goodwill is an intangible asset which shows the reputation of a firm .

methods of valuation of goodwill : 

1. average profit method 

2. weighted average profit method 

3. super profit method

4. capitalization of profit method 

formulas :

#1 average profit method : 

average profit = total profit/ number of years 

goodwill = average profit * no. of years purchased 

#2 weighted average profit method : 

weighted average profit = total weighted profit / total weight

goodwill = weighted profit * no. of years of purchase 

note :  make sure that years given in the question is in proper order , if not ; than make it in the proper order .

#3 super profit method :

capital employed = total assets - total liabilities 

expected rate of returns = given in example 

expected profit = capital employed * expected rate of return / 100 

calculate average profit by using above formula .

super profit = average profit - expected profit 

goodwill = super profit * no. of years of purchase 

#4 capitalization of profit method :

capitalization profit = expected profit / expected rate of return * 100

goodwill = capitalized profit - capital employed 

super profit capitalization method :

goodwill= super profit / expected rate of return * 100

note : if super profit is zero or negative then it is no goodwill exist in the business .