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Lesson Posted on 25/05/2020 Exam Coaching/ICWA Coaching Tuition/BBA Tuition Tuition/BCom Tuition

Gayatri D.

I am an experienced, qualified Chartered Accountant and tutor having teaching experience of 7 years in...

This is one of the important chapter in graduation level as well as in professional exams. The brief notes on methods and calculation of Goodwill in easy steps is presented below: Methods of Valuation of Goodwill Average Profits Method Super Profits Method Annuity Method Capitalisation Method By... read more

This is one of the important chapter in graduation level as well as in professional exams.

The brief notes on methods and calculation of Goodwill in easy steps is presented below:

Methods of Valuation of Goodwill

1. Average Profits Method
2. Super Profits Method
3. Annuity Method
4. Capitalisation Method
1. By Average Profits Method
2. By Super Profits Method

Let us discuss each method in detail.

1. AVERAGE PROFITS METHOD

STEPS for calculation

1. Adjusted average annual profits (See note 1)
2. Number of years of purchase (given in question)
3. Value of Goodwill= Adjusted average annual profits multiplied by number of years of purchase

Note :

• If number of years of purchase for valuation of goodwill not given in question, then the number of years for which data of profit or loss are given should be taken.

1. Calculation of Adjusted average annual profits:

Steps for calculating it are as follows:

• Calculation of Adjusted profits OR Adjusted Future profits OR Future Maintainable Profits

 Particulars Rs. Profits   (given in Question) --- Add: All expenses and losses not likely to occur or incur in future (e.g. extraordinary salary of a person, loss from fire or theft, abnormal losses, capital expenses etc.) --- Add: All profits likely to come in the future (e.g. profit due to new line of business) --- Less: All expenses and losses likely to occur in future (e.g. salaries on new appointments etc.) --- Less: Profits not likely to occur --- ADJUSTED PROFIT /FUTURE PROFIT ---
•  Calculation of Adjusted average profits

There are 2 methods:

Simple average method

(If in the question there is fluctuation in the profits for given periods with no specific trend then use this method). The formula is

Total adjusted profits of all the given years divided by number of years

Weighted average method

(Increasing or Decreasing trend in the profits for periods given in the question then use this method). The format for calculating it is as follows

 Profits weights Product (profits for all years (greater weightage for recent years and less weightage for earlier or past years) (profits multiplied by weights)

1. SUPER PROFITS METHOD

STEPS for calcuation

1. Adjusted average annual profits (See Note below)
2. Average Capital Employed (See Note below)
3. Normal Rate of Return (given in question)
4. Normal Profits = Average Capital Employed multiplied by Normal Rate of Return
5. Super Profits = Adjusted average annual profits less Normal Profits
6. Value of Goodwill = Super Profits multiplied by number of years of purchase

Note

• Calculation of Adjusted average annual profits (as discussed earlier)
• Calculation of Average Capital Employed

There are two ways to ascertain Average Capital Employed.Asset Based Approach

 Particulars rupees Assets (other than non-trading assets , intangible assets and fictitious assets) at market value --- Less: Liabilities to outsiders at revised values --- CAPITAL EMPLOYEDAT THE END OF THE YEAR --- Less: Half of the profit earned during the year --- AVERAGE CAPITAL EMPLOYED FOR THE YEAR ---

Liabilities Based Approach

 Particulars rupees rupees Equity Share Capital --- Preference Share Capital --- Reserves and Surplus --- Profit on Revaluation of Assets and Liabilities --- --- Less: Goodwill at book value --- Accumulated Losses and expenses not yet written off --- Loss on Revaluation --- --- CAPITAL EMPLOYEDAT THE END OF THE YEAR --- Less: Half of the profit earned during the year --- AVERAGE CAPITAL EMPLOYED FOR THE YEAR ---

1. ANNUITY METHOD

STEPS for calculation

1. Super Profits (Refer Super Profits method )
2. Annuity Value (given in question)
3. Value of Goodwill = Super profits multiplied by Annuity Value

1. CAPITALISATION METHOD

By Average Profits Method

STEPS for calculation

1. Adjusted average annual profits (See Note below)
2. Normal Rate of Return (given in question)
3. Total Value of Business = (Adjusted average annual profits divided by Normal Rate of Return) multiplied by 100
4. Value of Goodwill = Total Value of Business Less Capital Employed

Note: Capital Employed = Assets minus Liabilities

By Super Profits Method

STEPS for calculation

1. Super Profits (Refer Super Profits method )
2. Normal Rate of Return (given in question)
3. Value of Goodwill = (Super Profits divided by NRR) multipled by 100

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Lesson Posted on 05/07/2018 Tuition/BCom Tuition/Commerce Tuition/BCom Tuition Tuition/BCom Tuition/Banking and Insurance +16 Tuition/BCom Tuition/E-Commerce Tuition/BCom Tuition/Financial Accounting Tuition/MCom Tuition Tuition/MBA Tuition Exam Coaching/CA Coaching/CPT Exam Coaching/Company Secratary (CS) Coaching Exam Coaching/Company Secratary (CS) Coaching/Regular Classes Exam Coaching/Company Secratary (CS) Coaching/Crash Course Exam Coaching/ICWA Coaching Tuition/BBA Tuition Tuition/BBA Tuition/Fundamentals of Accounting Tuition/BBA Tuition/Financial Management Tuition/BBA Tuition/Management Accounting CBSE/Class 11/Commerce Tuition/BCA Tuition/E-Commerce CBSE/Class 11/Commerce/Accountancy less

Kousiki Chakraborty

Teaching is my hobby and not my profession. I have around 16 years teaching experience. I started my...

Is accountancy science and art?:--Accountancy plays a very important role in these days of growing commercial and trade. Frequently various laws and Acts like—Company’s Act, M.R.T.P. Act are being changed to meet the various requirements of an economy. So, business, trade, commerce are becoming... read more

Is accountancy science and art?:--Accountancy plays a very important role in these days of growing commercial and trade. Frequently various laws and Acts like—Company’s Act, M.R.T.P. Act are being changed to meet the various requirements of an economy. So, business, trade, commerce are becoming more and more complex with the changes of business laws and regulations , the role of accountancy is also changing. Accountancy is both science and art. Science means knowledge while art is action or the way of doing a thing in a significant way on the basis of certain accepted principles. Now-a-days , accountancy has so much of practical utility that its theoretical study is overshadowed by its practical application. It has now become a practice-oriented subject. If, we analyse the definitions of accountancy we will find that it is a systematic and scientific record of transactions in a set of books. Recording of transactions is an art which is done on the basis of certain accounting principles.

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Lesson Posted on 16/06/2018 Tuition/BBA Tuition Tuition/BBA Tuition/Fundamentals of Accounting Tuition/BBA Tuition/Financial Management +11 Tuition/BBA Tuition/International Business Tuition/MBA Tuition Tuition/BCom Tuition/Commerce Tuition/BCom Tuition/Financial Accounting Tuition/BCom Tuition/E-Commerce Tuition/MCom Tuition Exam Coaching/CA Coaching/CPT Exam Coaching/Company Secratary (CS) Coaching Exam Coaching/ICWA Coaching CBSE/Class 11/Commerce/Accountancy CBSE/Class 11/Commerce/Economics less

Kousiki Chakraborty

Teaching is my hobby and not my profession. I have around 16 years teaching experience. I started my...

Co branding is the utilization of two or more brands to name a new product. The ingredient brands help each other to achieve their aims. The overall synchronization between the brand pair and the new product has to be kept in mind. Example of co-branding - Citibank co-branded with MTV to launch a co-branded... read more

Co branding is the utilization of two or more brands to name a new product. The ingredient brands help each other to achieve their aims. The overall synchronization between the brand pair and the new product has to be kept in mind.

Example of co-branding - Citibank co-branded with MTV to launch a co-branded debit card. This card is beneficial to customers who can avail benefits at specific outlets called MTV Citibank club.

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Lesson Posted on 25/05/2018 Tuition/BCom Tuition Tuition/MCom Tuition Tuition/MBA Tuition +7 Exam Coaching/CA Coaching/CPT Exam Coaching/Company Secratary (CS) Coaching Exam Coaching/ICWA Coaching Tuition/BBA Tuition Tuition/BBA Tuition/Fundamentals of Accounting CBSE/Class 11/Commerce CBSE/Class 11/Commerce/Accountancy less

Kousiki Chakraborty

Teaching is my hobby and not my profession. I have around 16 years teaching experience. I started my...

A dividend is a distribution of a portion of a company's earnings, decided by the board of directors, paid to a class of its shareholders. Dividends can be issued as cash payments, as shares of stock, or other property. When a corporation declares a dividend on its common stock, it will credit a current... read more

A dividend is a distribution of a portion of a company's earnings, decided by the board of directors, paid to a class of its shareholders. Dividends can be issued as cash payments, as shares of stock, or other property.

When a corporation declares a dividend on its common stock, it will credit a current liability account Dividends Payable and will debit either 1) Retained Earnings, or 2)Cash Dividends Declared. Cash Dividends Declared is a balance sheet account, but it is a temporary account.

The cash dividend affects primarily cash and shareholders' equity accounts. There is no separate balance sheet account for dividends after they are paid. However, after the dividend declaration and before the actual payment, the company records a liability to its shareholders in the dividend payable account.

For Companies, Dividends Are Liabilities. Conversely, the assets of the issuing company are reduced by the payment of a dividend. ... When a dividend is declared, the total value is deducted from the company's retained earnings and transferred to a temporary liability sub-account called dividends payable.

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Lesson Posted on 25/05/2018 Tuition/BCom Tuition Tuition/MCom Tuition Tuition/BBA Tuition +6 Tuition/BBA Tuition/Fundamentals of Accounting Tuition/MBA Tuition Exam Coaching/CA Coaching/CPT CBSE/Class 11/Commerce Exam Coaching/Company Secratary (CS) Coaching Exam Coaching/ICWA Coaching less

Kousiki Chakraborty

Teaching is my hobby and not my profession. I have around 16 years teaching experience. I started my...

Inventory turnover is a ratio showing how many times a company's inventory is sold and replaced over a period of time.The formula is given below:-- Stock Turnover= If a company has a high ratio (anywhere above 1) then they are capable of paying their short-term obligations. The higher the ratio, the... read more

Inventory turnover is a ratio showing how many times a company's inventory is sold and replaced over a period of time.The formula is given below:--

Stock Turnover=[Cost of sales / Average stock Held]

If a company has a high ratio (anywhere above 1) then they are capable of paying their short-term obligations. The higher the ratio, the more capable the company. On the other hand, if the company's current ratio is below 1, this suggests that the company is not able to pay off their short-term liabilities with cash.

Inventory Turnover Ratio is the ratio of Cost of Goods Sold / Average Inventory during the same time period. The higher the Inventory Turnover Ratio, the more likely it is that a business is carrying too much inventory. Overstocking means that cash is being tied up in inventory assets for a prolonged period.

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Lesson Posted on 25/05/2018 Tuition/BCom Tuition Tuition/MCom Tuition Tuition/BBA Tuition +8 Tuition/BBA Tuition/Fundamentals of Accounting Tuition/MBA Tuition Exam Coaching/CA Coaching/CPT Exam Coaching/Company Secratary (CS) Coaching Exam Coaching/ICWA Coaching CBSE/Class 11/Commerce CBSE/Class 11/Commerce/Accountancy CBSE/Class 11/Commerce/Economics less

Kousiki Chakraborty

Teaching is my hobby and not my profession. I have around 16 years teaching experience. I started my...

A fiscal deficit occurs when a government's total expenditures exceed the revenue that it generates, excluding money from borrowings. Deficit differs from debt, which is an accumulation of yearly deficits. A country's fiscal deficit is usually communicated as a percentage of its gross domestic product... read more

A fiscal deficit occurs when a government's total expenditures exceed the revenue that it generates, excluding money from borrowings. Deficit differs from debt, which is an accumulation of yearly deficits.

A country's fiscal deficit is usually communicated as a percentage of its gross domestic product (GDP).

Deficits are also caused from a decline in revenue due to an economic contraction such as a recession or depression. Unplanned events, such as natural disasters and war, can also cause deficits.

A deficit is the amount by which a sum falls short of some reference amount. Ineconomics, a deficit is an excess of expenditures over revenue in a given time period; in more specific cases it may refer to: Balance of payments deficit, when the balance of payments is negative. Government budget deficit.

The difference between total revenue and total expenditure of the government is termed as fiscal deficit. It is an indication of the total borrowings needed by the government. While calculating the total revenue, borrowings are not included. Primary deficit is one of the parts of fiscal deficit.

Government spending, inflation and lower revenue are among some of the main factors that point to fiscal deficit. But when there is an increase in fiscal deficit it means that the government is spending too much while it is earning less. Hence, it isimportant that the government keeps its expenses under control.

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Lesson Posted on 07/05/2018 CBSE/Class 11/Commerce/Accountancy Exam Coaching/CA Coaching Exam Coaching/CA Coaching/IPCC Group 1 +16 Exam Coaching/CA Coaching/CA Final Exam Coaching/CA Coaching/IPCC Group 2 Exam Coaching/CA Coaching/CPT Exam Coaching/CA Coaching/Crash Course Exam Coaching/ICWA Coaching Exam Coaching/Company Secratary (CS) Coaching Exam Coaching/ACCA Exam Coaching Tuition/BCom Tuition Tuition/BCom Tuition/Income Tax Laws Tuition/MCom Tuition Tuition/BBA Tuition Tuition/BBA Tuition/Fundamentals of Accounting Tuition/BBA Tuition/Financial Management CBSE/Class 11 CBSE/Class 12 Tuition/MBA Tuition less

CA Prashanth Reddy

I enjoy teaching and interacting with students. Teaching is my passion, profession and hobby. Every student...

Dependent Branch: A branch which is dependent upon Head Office mainly for “Goods and Cash”. Books of accounts relating to such branch also will be maintained by Head Office. Features of Dependent Branch: Branch receives goods from Head Office. Only those goods supplied by Head office... read more

Dependent Branch: A branch which is dependent upon Head Office mainly for “Goods and Cash”.  Books of accounts relating to such branch also will be maintained by Head Office.

Features of Dependent Branch:

1. Branch receives goods from Head Office. Only those goods supplied by Head office will be dealt (sold) by branch. However, in case of need/emergency, the branch may be allowed to make local purchase after getting consent from Head Office. For those purchases, payments may be directly made by Head office or funds transferred to branch.
2. Goods may be supplied to Head office at Cost price / Invoice price
3. Branch normally makes cash sales. In some cases, branch is allowed to make credit sales also to regular/approved customers (with the consent of Head office).
4. Cash sales and collection from debtors are periodically remitted to Head office.
5. Branch accounts will be maintained by Head Office. However Branch maintains memorandum books like petty cash, debtors etc.
6. Branch expenses like salary, rent etc. are paid/met by Head office. For this purpose there can be two alternatives.
7. Head office separately sends cash to branch for meeting expenses
8. Branch while remitting cash to head office, deducts some portion (towards expenses) and balance will be remitted.
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Lesson Posted on 07/05/2018 Exam Coaching/CA Coaching/IPCC Group 1 Exam Coaching/CA Coaching/IPCC Group 2 Exam Coaching/CA Coaching/CA Final +17 Exam Coaching/CA Coaching Exam Coaching/CA Coaching/CPT Exam Coaching/CA Coaching/Crash Course Exam Coaching/ICWA Coaching Exam Coaching/Company Secratary (CS) Coaching Tuition/BCom Tuition/Company Law Exam Coaching/Company Secratary (CS) Coaching/Regular Classes Exam Coaching/Company Secratary (CS) Coaching/Crash Course IBPS SO/IBPS SO Professional Paper/Law/Types of Companies Tuition/BCom Tuition Tuition/BCom Tuition/Income Tax Laws Tuition/BBA Tuition Tuition/BBA Tuition/Fundamentals of Accounting Tuition/BBA Tuition/Financial Management Tuition/BBA Tuition/Financial Accounting CBSE/Class 11 CBSE/Class 12 less

CA Prashanth Reddy

I enjoy teaching and interacting with students. Teaching is my passion, profession and hobby. Every student...

Accounting is the language of business. The objective of such language is to communicate information which is useful for varied category of people. Collectively we call them as “Users of financial statements”. Day by day, users of financial statement getting expanded, here is the list of... read more

Accounting is the language of business. The objective of such language is to communicate information which is useful for varied category of people. Collectively we call them as “Users of financial statements”. Day by day, users of financial statement getting expanded, here is the list of “Users” which can be remembered in our Traditional “A,B, C, D .. Format.

 A Auditor B Banks/buyers C Creditors/credit agencies/competitors D Debtors/Director E Employees F Financial Institutions G Government H Holders of Capital I Investors J Journalists (media) K Key Managerial Personnel’s (KMP’s) L Legislators M Management/Money lenders N Nation O Owners P Public/Prospective investors Q Quantitative Analysts R Regulatory agencies S Students/stockbrokers T Tax authorities U Unions (trade/labour) V Vendors W Workers

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Lesson Posted on 07/05/2018 Exam Coaching/CA Coaching Exam Coaching/CA Coaching/CA Final Exam Coaching/CA Coaching/CPT +15 Exam Coaching/CA Coaching/Crash Course Exam Coaching/CA Coaching/IPCC Group 1 Exam Coaching/CA Coaching/IPCC Group 2 Exam Coaching/MBA Entrance Coaching/CAT Coaching Exam Coaching/ICWA Coaching Tuition/BCom Tuition/Company Law Exam Coaching/Company Secratary (CS) Coaching Exam Coaching/Company Secratary (CS) Coaching/Regular Classes Exam Coaching/Company Secratary (CS) Coaching/Crash Course Exam Coaching/ACCA Exam Coaching Tuition/BCom Tuition Tuition/BCom Tuition/Income Tax Laws Tuition/MCom Tuition Tuition/BBA Tuition/Fundamentals of Accounting Tuition/BBA Tuition/Financial Management less

CA Prashanth Reddy

I enjoy teaching and interacting with students. Teaching is my passion, profession and hobby. Every student...

What are the Statutory Provisions relating to the Transfer of Profits to Reserves? Answer: As per companies Act, 2013 there is no requirement of minimum transfer of profits to reserves. The company can transfer any amount of profits to reserves as per its own judgement before paying dividends. Depreciation... read more

What are the Statutory Provisions relating to the Transfer of Profits to Reserves?

As per companies Act, 2013 there is no requirement of minimum transfer of profits to reserves. The company can transfer any amount of profits to reserves as per its own judgement before paying dividends.

Depreciation is calculated from the period when the asset is put to use as per INCOME TAX Act.

Managerial Remuneration: Section 197 AND SCHEDULE V prescribes overall maximum managerial remuneration. Managerial personnel means directors on the board of directors.

###### Summary of different limits based on net profit of the company is :
 Sl. No. Managerial Personnel % of Net  Profits U/S  SECTION  198 (Maximum) 1. Overall (excluding fees for attending meetings) 11% 2. If there is one managerial personal 5% 3. If there is more than one managerial personnel 10% 4. Remuneration of part-time Directors: (a)  If there is no manager or whole – time director (b)  If there is a managing director of whole time director 3% 1%

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Answered on 20/06/2018 Exam Coaching/ICWA Coaching

How do I clear the ICWA foundation course in the first attempt?

CA Sonali Doshi

Accountant

First thourly study the study material provided by the institute and understand all the concepts and theory and then there are test papers on institute site which are good to practice more. Also you can refer the scanners for additional practice.
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