Fill in the blanks: Goodwill is considered an ___ asset and represents the firm's ___ established over time.

Intangible; reputation

What differentiates the Weighted Average Profit Method from the Average Profit Method?

Weighted Average Profit Method adjusts profits.

• Uses weights for recent profits.

• Reflects significance of each year.

• Average Profit treats all years equally.

Calculate goodwill using the Super Profit Method if the average profit after tax is Rs. 1,10,000 and the normal profit is Rs. 78,840, given a purchase consideration of two years' purchase.

Calculate goodwill using super profit method.

• Average profit after tax is Rs. 1,10,000.

• Normal profit is Rs. 78,840.

• Goodwill amounts to Rs. 62,320.

True or False: The Capitalization Method can only be applied using the Capitalization of Average Profit Method.

False. The Capitalization Method can be applied using both the Capitalization of Super Profit Method and the Capitalization of Average Profit Method.

What is the purpose of the Annuity Method in goodwill valuation?

Annuity Method values goodwill effectively.

• Considers super profits as annuity.

• Discounts future profits' present value.

• Provides a systematic valuation approach.

How does the Purchase Method calculate goodwill?

Goodwill calculation explained here.

• Purchase consideration assessed first.

• Net assets calculated accurately.

• Goodwill reflects business value.

Fill in the blank: The formula for calculating Goodwill under the Average Profit Method is Goodwill = Average Profits × ___ of Purchase.

Number of Years

What factors affect the valuation of goodwill in a business?

Valuation factors include various elements.

• Firm's reputation impacts trust.

• Customer base reflects loyalty.

• Proprietary tech adds value.

True or False: Goodwill can be valued for businesses that consistently show losses.

False. Goodwill applies only to firms that generate super-profits and not to those that incur regular losses.