Goodwill |Average profit Method |Partnership |Chapter 2 |Class 12 |Part 1

Valuation of Goodwill Goodwill is an intangible asset that represents the excess of the purchase price of a business over the fair market value of its identifiable net assets. In simpler terms, it's the value of a company's reputation, brand recognition, customer loyalty, and other intangible assets that contribute to its capacity. Methods of Valuing Goodwill There are several methods commonly used to value goodwill: Super Profits Method: Calculate Super Profit: Super profit is the excess of actual or average profit over normal profit. Normal profit is the expected return on capital employed at a normal rate of return. Calculate Goodwill: Goodwill is calculated by multiplying the super profit by the number of years' purchase. Capitalization of Super Profits Method: Calculate Super Profit: Same as above. Capitalize Super Profit: Divide the super profit by the normal rate of return to get the capitalized value of super profit. Calculate Goodwill: Goodwill is the capitalized value of super profit. Average Profits Method: Calculate Average Profit: Determine the average profit of the past few years. Calculate Goodwill: Multiply the average profit by the number of years' purchase. Weighted Average Profits Method: Calculate Weighted Average Profit: Assign weights to each year's profit based on their importance. Calculate Goodwill: Multiply the weighted average profit by the number of years' purchase. Factors Affecting Goodwill Valuation Earning Capacity: Higher earning capacity generally leads to higher goodwill.    • Chapter 1 | Accounting For Partnership ( 1...   #goodwill #12thaccount #12accountancy #averageprofitmethod #12thaccounts #12thcbse #mpboard #upboardexam2025