1. Super profit Method
2. Capitalization method
1. FMP
2. CE
3. NRR
1. Only Profit of those years with normal activity to be considered (years of Abnormal activity excl.)
2. Profits – Operating profits (non-operating items excl but if they are recurring to be incl)
3. Income from Trade Investment only to be considered (NTI not to be considered)
4. Fluctuating Profits – Simple Avg
5. Profits with a trend - Weighted Avg
6. If fixed asset is revalued – ignore p/l on revaluation , if other assets(liab)- consider
7. But consider addl. depn on the revaluation o FA
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Capital Employed = Total Assets (excl. Fictitious Assets & non trade Assets & GW) Less: Outside liabilities |
1. Unproductive assets excl.
2. Assets @ FV
3. Only Purchased GW to be considered
4. Patents/Trademarks/licenses – FV
5. Trade Investment – FV
6. Non-trade investment – ignore
7. Stock, Drs, Loans & Adv – Realizable/recoverable value
8. Liabilities – at redemption amts
9. Do not deduct Pref Cap & proposed div
10. Borrowing relating to pur of NTI not to be deducted
11. Workmen Compensation Fund is not Outsider liability
12. Alternatives for CE
1. CCE - Closing capital employed _ (preferred)
2. ACE – Avg capital employed ( opg+clg/2) ( Used in SP method where Past profits are considered)
3. Avg. Capital = Closing capital - half profits after tax
1. Bank rate + Risk Premium
2. NRR= EY= EPS/MPS *100
1. Compute Normal Profits (NP) = CE * NRR
2. Determine Super profits (SP) = FMP - NP
3. Compute GW = SP * NYP
1. Compute NCE = FMP/NRR *100
2. GW = NCE – Actual Capital employed
1. Actual Capital Employed = Equity + Pref+ R/S ( or Total assets (excl fictitious) Less :Outsiders liabilities
2. FMP = EBIT – Int- Tax I,e EAT
1. Actual Capital Employed = Capital Employed under above method+ long term loans
2. FMP = EBIT – Tax ( Int is not deductible)
If Goodwill calculated under SHF approach is more than LTF approach, then its’ a +ve leverage effect otherwise vice-versa.
PFA a file i have prep.. and give ur views abt dat.. its just lik a LMR
CAclubindia
