GOODWILL ON SALE

Hauraki Plains Gazette, Volume 54, Issue 32622, 17 September 1945, Page 7

GOODWILL ON SALE

TRANSPORT BUSINESS FORMULA IS DRAWN UP In connection with a uniform method of valuation of goodwill on sale of transport concerns, the following formula, drawn up by a committee of representatives from the .State Advances Corporation and the Rehabilitation, Stamp Duties and Transport Departments, and approved by Treasury, was read by Mr N. S. Angus, representing the Transport Department, at the sitting of the No. 1 Transport Licensing Authority iu Thames yesterday. The amount to be paid for goodwill in respect of any transport business should not exceed two years’ purchase of the super profits averaged over past three years, provided that those years can be considered to be a fair and equitable guide to future earnings.

Super profits are the profits remaining after the usual expense items have been taken into account, plus (a) interest at 6 per cent on the average capital employed over the past three years, and (b) a reasonable debit for the proprietor’s services. Average capital is to be taken as the excess of the tangible assets necessary to the operation of the busi-

ness as a going concern on presentday valuations over curret liabilities. Goodwill was an asset depending on many variable factors and it was impossible to lay down a method of valuation that would meet every case, said Mr Angus. The formula would, however, be a guide. It was not possible to set down how individual expense items should be dealt with, but taxation should not as a rule be treated as an expenditure item. Allowance must be made for depreciation in each ease at a reasonable figure, which it was suggested should be 15 per cent on the original value of the vehicle. Actual expenses of the business under consideration, not the conventional allowances fixed by the tribunal, should be considered, but the conventions could be used as a guide where an allowance for an item such as garaging has to be included in the expenses.