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Why is future earning capacity important in goodwill calculation?

Answer and explanation

Correct answer: Because goodwill shows ability to earn extra future profits

Goodwill arises from reputation and extra earning capacity of the firm. Therefore ordinary asset value alone is not enough.

Related tags

Earning CapacityConceptGoodwillGoodwill AccountingReconstitution Admission Of A PartnerAccountancyClass 12 Mcq

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