Ugh. That's not pretty. I replaced my entire underfloor because of soft decking, and while I did it I also replaced all the foam. Where the splashwell comes thru the transom there is a gap about an inch wide on each side that I filled with putty and then glassed to the transom and stringers, making the splashwell a lot (in my estimation) stronger. But I never had any problem with the transom or the splashwell bubble so I'm really at a loss to say what to do, other than it obviously needs repair. If it were me I would cut across the top, separate the inside and outside halves, remove the rotted wood and pour a new splashwell.
Remember, if you remove the splashwell I don't think you can really call your boat a V21 anymore since it's the bubble sticking out the back of the transom that gives it the extra foot to make it a V21. Of course, if you add a bracket then you could probably call it a V? whatever the length of the bracket is.
Seriously, since you're dealing with lots of curves trying to make a new splashwell out of wood might be more than you want to tackle. I'd definitely give thought to pouring. In all cases that's something that needs serious fixing.
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1987 V20 w/1987 150HP Yamaha on a Shoreland'r Trailer
1978 16.5 Airslot w/1996 120HP Force on a Four Winns trailer
1996 V21 w/1993 200HP Mercury on a Shoreline Trailer
All towed by a 5.7L Hemi Durango.
If God didn't have a purpose for us we wouldn't be here, so
Live simply, Love generously, Care deeply, Speak kindly.
(Leave the rest to God) 
Silence, in the face of evil, is itself evil. Not to speak is to speak, not to act is to act. God will not hold us guiltless.
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