Corporate Accounting

8

Valuation of Goodwill and Shares

LEARNING OBJECTIVES

After studying this chapter you should be able to:

1. Define: Goodwill.

2. Understand the nature and sources of goodwill.

3. Appreciate the need for valuing goodwill.

4. Understand the terms: future maintainable profit; normal rate of return; capital employed and average capital employed.

5. Determine average capital employed under different methods.

6. Value goodwill by average profits method; super profit method and capitalization method.

7. Appreciate the need for valuation of shares.

8. Value shares by intrinsic value method; yield method and fair value method.

9. Understand “minority” and “majority” holdings.

10. Explain the meaning of certain key terms associated with “Valuation of Goodwill and Shares”.