Introduction: The weighted average method of calculating goodwill is an accounting method used to determine the value of a company's intangible assets. It is generally used in situations where the profits of a company are not equal or are fluctuating.

Explanation: The weighted average method of calculating goodwill takes into account the past profits of a company and assigns a weight to each year based on its relative importance. The formula used to calculate the weighted average goodwill is:

Goodwill = (Average profit x Number of years) - Net assets

Where:

- Average profit is the average profit over the number of years being considered
- Number of years is the number of years being considered
- Net assets are the total assets of the company minus its liabilities

When is it used?

The weighted average method of calculating goodwill is used when:

- Profits are not equal: When a company's profits are not equal over the years, the weighted average method is used to determine the value of goodwill. This is because using a simple average would not accurately reflect the importance of each year's profits.
- Profits show a trend: If a company's profits are increasing or decreasing over the years, the weighted average method is used to determine the value of goodwill. This is because using a simple average would not accurately reflect the trend.
- Profits are fluctuating: When a company's profits are fluctuating, the weighted average method is used to determine the value of goodwill. This is because using a simple average would not accurately reflect the volatility of the profits.

Conclusion: In conclusion, the weighted average method of calculating goodwill is an important accounting method used to determine the value of a company's intangible assets. It is generally used in situations where the profits of a company are not equal or are fluctuating. By taking into account the past profits of a company and assigning a weight to each year based on its relative importance, the weighted average method provides a more accurate reflection of the value of goodwill.

When profits show a trend
option B