Adjustment for Management Cost

The adjustment for management cost is a type of adjustment made in the valuation of goodwill. This adjustment is made to account for the cost of management in running the business. The adjustment is made when the management cost is not included in the profit and loss account of the business.

Annual Charge of Rs. 56,250

The adjustment in this case involves an annual charge of Rs. 56,250. This charge is made for the purpose of valuing the goodwill of the business. The charge represents the cost of management in running the business.

Explanation

When a business is sold, the value of the goodwill is usually included in the sale price. Goodwill is the value of the business over and above its tangible assets. It represents the reputation, customer base, and other intangible assets of the business.

To determine the value of the goodwill, it is necessary to take into account the cost of management in running the business. This includes the salaries of the managers, the cost of office space, and other expenses related to management.

To make this adjustment, an annual charge of Rs. 56,250 is added to the profit and loss account of the business. This charge represents the cost of management in running the business.

Conclusion

The adjustment for management cost is an important adjustment in the valuation of goodwill. It is necessary to take into account the cost of management in running the business when determining the value of the goodwill. The annual charge of Rs. 56,250 represents this cost and is added to the profit and loss account of the business.

It is a type of expense and it is deducted from the profit