Introduction:
Goodwill is the value of a company's reputation, brand name, and other intangible assets that contribute to its success. It is calculated by subtracting the net tangible assets from the purchase price of a company. However, abnormal income and expenses need to be adjusted in the valuation of goodwill.

Deduction of Abnormal Income:
Abnormal income is the income earned by a company due to non-recurring or extraordinary events. For example, a company may receive a large settlement from a lawsuit or sell a major asset for a significant profit. Such events are not expected to be repeated in the future and do not reflect the company's ongoing operations. Therefore, abnormal income is deducted from the net profit in the valuation of goodwill to arrive at a more accurate representation of the company's true earning power.

Addition of Abnormal Expense:
Abnormal expense is the expense incurred by a company due to non-recurring or extraordinary events. For example, a company may incur significant legal fees to defend against a lawsuit or write off a major asset due to damage or obsolescence. Such events are not expected to be repeated in the future and do not reflect the company's ongoing operations. Therefore, abnormal expense is added to the net profit in the valuation of goodwill to arrive at a more accurate representation of the company's true earning power.

Conclusion:
In conclusion, abnormal income and expenses need to be adjusted in the valuation of goodwill to arrive at a more accurate representation of the company's true earning power. Abnormal income is deducted from the net profit, while abnormal expense is added to the net profit in the calculation of goodwill. This adjustment helps to ensure that the value of goodwill reflects the company's ongoing operations and future earning potential.