Question

13. Total capital of the firm is 8,00,000 and normal rate of return is 15%. Profit for the year is 1,50,000
Goodwill of the firm through the capitalization method is
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Answer 1

Answer:

Step 1: Calculation of Capitalised Value of Profit:

Capitalised Value of profit= [ Profit * 100]/ Normal Rate Of Return

                                           = [200000*100]/10

                                            = 2000000

Step 2: Calculation of Total Capital:

Total Capital= 1600000

Step 3: Calculation of Goodwill:

Goodwill= Capitalised Value of Profit- Total Capital

               = 2000000-1600000

               = 400000

Explanation:

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