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Under annuity basis goodwill is calculated by:
- a)No. of years purchased multiplied with average profits
- b)No. of years Purchased multiplied with super profits
- c)Summation of the discounted value of expected future benefits
- d)Super profit divided with expected rate of return.
Correct answer is option 'C'. Can you explain this answer?
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Under annuity basis goodwill is calculated by:a)No. of years purchased...
Under this method, goodwill is calculated by taking average super profit as the value of an annuity over a certain number of years. The present value of this annuity is computed by discounting at the given rate of interest (normal rate of return). This discounted present value of the annuity is the value of goodwill.
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Under annuity basis goodwill is calculated by:a)No. of years purchased...
Calculation of Goodwill under Annuity Basis
Under annuity basis, goodwill is calculated by the summation of the discounted value of expected future benefits. It is calculated by following the below steps:
Step 1: Determine the expected future benefits
The first step in calculating goodwill under annuity basis is to determine the expected future benefits. This includes estimating the future profits of the business, which is usually done by taking an average of past profits.
Step 2: Determine the rate of return
The next step is to determine the rate of return that the purchaser expects to earn on the investment. This rate of return is typically based on the risk associated with the investment and the current market conditions.
Step 3: Calculate the discounted value of future benefits
Using the expected future benefits and the expected rate of return, the discounted value of future benefits is calculated. This involves discounting the expected future benefits back to their present value using the expected rate of return.
Step 4: Summation of discounted value of future benefits
Finally, the discounted value of future benefits is summed up to arrive at the total goodwill. This represents the excess amount paid for the business over its net tangible assets.
Conclusion
Goodwill under annuity basis is calculated by the summation of the discounted value of expected future benefits. This method takes into account the future profitability of the business and the expected rate of return on the investment. By following these steps, the purchaser can arrive at a fair value for the goodwill of the business.
Under annuity basis, goodwill is calculated by the summation of the discounted value of expected future benefits. It is calculated by following the below steps:
Step 1: Determine the expected future benefits
The first step in calculating goodwill under annuity basis is to determine the expected future benefits. This includes estimating the future profits of the business, which is usually done by taking an average of past profits.
Step 2: Determine the rate of return
The next step is to determine the rate of return that the purchaser expects to earn on the investment. This rate of return is typically based on the risk associated with the investment and the current market conditions.
Step 3: Calculate the discounted value of future benefits
Using the expected future benefits and the expected rate of return, the discounted value of future benefits is calculated. This involves discounting the expected future benefits back to their present value using the expected rate of return.
Step 4: Summation of discounted value of future benefits
Finally, the discounted value of future benefits is summed up to arrive at the total goodwill. This represents the excess amount paid for the business over its net tangible assets.
Conclusion
Goodwill under annuity basis is calculated by the summation of the discounted value of expected future benefits. This method takes into account the future profitability of the business and the expected rate of return on the investment. By following these steps, the purchaser can arrive at a fair value for the goodwill of the business.
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Under annuity basis goodwill is calculated by:a)No. of years purchased multiplied with average profitsb)No. of years Purchased multiplied with super profitsc)Summation of the discounted value of expected future benefitsd)Super profit divided with expected rate of return.Correct answer is option 'C'. Can you explain this answer?
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Under annuity basis goodwill is calculated by:a)No. of years purchased multiplied with average profitsb)No. of years Purchased multiplied with super profitsc)Summation of the discounted value of expected future benefitsd)Super profit divided with expected rate of return.Correct answer is option 'C'. Can you explain this answer? for CA Foundation 2025 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about Under annuity basis goodwill is calculated by:a)No. of years purchased multiplied with average profitsb)No. of years Purchased multiplied with super profitsc)Summation of the discounted value of expected future benefitsd)Super profit divided with expected rate of return.Correct answer is option 'C'. Can you explain this answer? covers all topics & solutions for CA Foundation 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Under annuity basis goodwill is calculated by:a)No. of years purchased multiplied with average profitsb)No. of years Purchased multiplied with super profitsc)Summation of the discounted value of expected future benefitsd)Super profit divided with expected rate of return.Correct answer is option 'C'. Can you explain this answer?.
Under annuity basis goodwill is calculated by:a)No. of years purchased multiplied with average profitsb)No. of years Purchased multiplied with super profitsc)Summation of the discounted value of expected future benefitsd)Super profit divided with expected rate of return.Correct answer is option 'C'. Can you explain this answer? for CA Foundation 2025 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about Under annuity basis goodwill is calculated by:a)No. of years purchased multiplied with average profitsb)No. of years Purchased multiplied with super profitsc)Summation of the discounted value of expected future benefitsd)Super profit divided with expected rate of return.Correct answer is option 'C'. Can you explain this answer? covers all topics & solutions for CA Foundation 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Under annuity basis goodwill is calculated by:a)No. of years purchased multiplied with average profitsb)No. of years Purchased multiplied with super profitsc)Summation of the discounted value of expected future benefitsd)Super profit divided with expected rate of return.Correct answer is option 'C'. Can you explain this answer?.
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