Question

(1)
Q(3) Total capital employed in the firm is Rs 8,00,000, reasonable rate of retum is 15% and profit for the year is
Rs 12,00,000. The value of goodwill of the firm as per capitalization method would be
(a) Rs 82,00,000 (b) Rs 12,00,000 (c) Rs 72,00,000 (d)Rs 42,00,000
(1)​

Answer 1

Answer:

72,00,000

Explanation:

Calculation of goodwill under capitalization basis-

Capital employed = Rs. 800000

Normal value of business = Average profit/capitalization rate

Normal value of business = Rs. 120000/ 15%

Normal value of business = Rs. 8000000

Goodwill = Normal value of business - capital employed

Goodwill = Rs. 8000000 - Rs. 800000

Goodwill = Rs. 7200000