Skip to content

CMA Final · Strategic Performance Management and Business Valuation · Fundamentals of Business Valuation

Case: Meera Pharma is being valued by an analyst. Net assets at book value are ₹50 crore. The fair value of land exceeds its book value by ₹12 crore, and there is an unrecorded contingent liability, likely to crystallise, of ₹4 crore. Deferred tax is to be ignored. Capitalising maintainable profit of ₹9 crore at 12% gives ₹75 crore. Goodwill under the super-profit approach is based on a normal return of 12% on adjusted net assets. Capitalised value of super profit is the excess of capitalised maintainable profit over adjusted net assets. What is the goodwill?

Goodwill is ₹17 crore. Adjusted net assets are book ₹50 crore plus ₹12 crore land uplift less the ₹4 crore liability, which is ₹58 crore. Subtracting this from the capitalised maintainable profit of ₹75 crore leaves goodwill of ₹17 crore.

  1. A₹17 croreCorrect
  2. B₹25 crore
  3. C₹13 crore
  4. D₹21 crore

Explanation

Adjusted net assets = 50 + 12 - 4 = ₹58 crore. Goodwill = 75 - 58 = ₹17 crore. Using book net assets gives ₹25 crore; adding the liability instead gives ₹13 crore.

Did you get it right without looking?

One question tells you little. A timed set on Fundamentals of Business Valuation shows your real accuracy, how long you take and where you lose marks.

Practise Fundamentals of Business ValuationFree diagnostic mock

More Fundamentals of Business Valuation questions