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Dear Tutor,
Do I understand right when calculationg the value of the Company by using the book value model we should deduct from the total value of the net assets the goodwill.
Do we deduct it, because it is not an identifiable asset and therefore can not be sold separately or is there any other explanation?Thank you.
If you are using book values (which is unlikely in the exam) you certainly do not subtract anything for goodwill (goodwill will not be appearing on the SOFP) – you need to add something for goodwill, not subtract it! Goodwill makes the business worth more, not less.
Dear Tutor,
I found one example in the BPP Textbook. I have a hardcopy of the textbook valid up to August 2016 and there is an Example called Cactus on p.314. In the question the summary SFOP is presented and there is a position Goodwill of $20.000. In the answer the value of goodwill is deducted from the total value of net assets to get a Total value of tangible assets (net). From this value preference shares, debentures and deferred taxation is deducted to get the NAV of equity. This value is then divided by the number of shares to get the value per share.
I hope I could make my issue clear.
Thank you.
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