Goodwill Valuation

Step 1: Adjust profits for abnormalities.
Abnormal losses depress profit and should be \emph{added back} to find normal maintainable profits.
Step 2: Compute Average Profit (Simple Average).

Step 3: Apply Years’ Purchase.
Goodwill (Average Profit Method) Average Profit Years’ Purchase Note. The given “total capital Rs. 1,00,000” is \emph{not} required in the Average Profit Method (it would matter in Capitalisation/Super Profit methods).
Final Answer: % Quciktip

Step 1: Situations. Goodwill is valued when the profit-sharing ratio of partners changes.
Step 2: Cases. - Admission of a new partner. - Retirement/death of a partner. - Sale of business. - Amalgamation or merger.
Final Answer: % Quciktip

Step 1: Define. Goodwill is often valued as Super Profit Number of Years’ Purchase.
Step 2: Meaning. “Years’ Purchase” = number of future years for which firm expects to earn super profits.
Step 3: Example. If super profit = 40,000 and years’ purchase = 3, then goodwill = 1,20,000.
Final Answer: % Quciktip

Step 1: Concept of types of goodwill.
Goodwill has been categorized in various descriptive forms to indicate its nature and stability.
Step 2: Explanation of each.
- Rat Goodwill: Very unstable, can disappear quickly if conditions change.
- Cat Goodwill: Local goodwill, limited to a particular area; like a cat attached to a home, it does not move easily.
- Dog Goodwill: Stable and loyal, customers remain attached to the business for long, like the loyalty of a dog.
Step 3: Conclude.
Since all three (rat, cat, and dog goodwill) are recognized types, the correct answer is “All of these”.
Final Answer: