Question

23. Goodwill on the basis of Capitalised value of Average profit = Rs.1,10,000 Normal Rate of Return = 10% Average Profit = Rs.60,000 Sundry Liabilities = Rs.1,30,000 Sundry Assets = ? 1. Rs.6,20,000 2. Rs.6,10,000 3. Rs.5,90,000 4. None of these​

Answer 1

ANSWER :

❖ Option (1) Rs. 6,20,000

• ✎ If Goodwill on the basis of Capitalised value of Average profit is Rs. 1,10,000; Normal Rate of Return is 10%; Average Profit is Rs. 60,000 and Sundry Liabilities = Rs. 1,30,000; then the value of Sundry Assets will be Rs. 6,20,000.

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SOLUTION :

❒ Given :-

• Goodwill on the basis of Capitalised value of Average profit = Rs. 1,10,000

• Normal Rate of Return = 10%

• Average Profit = Rs. 60,000

• Sundry Liabilities = Rs. 1,30,000

❒ To Calculate :-

• Sundry Assets = ?

❒ Required Formula :-

• $\dag \: \: \underline{ \boxed{ \sf{ \: Total \: \: Value \: \: of \: \: the \: \: firm = \dfrac{Average \: \: Profit \times 100}{ Normal \: \: Rate \: \: of \: \: Return} \: }}}$

• $\dag \: \: \underline{ \boxed{ \sf{ \: Value \: \: of \: \: Goodwill = Total \: \: Value \: \: of \: \: the \: \: Firm - Total \: \: Capital \: \: Employed \: }}}$

• $\dag \: \: \underline{ \boxed{ \sf{ \: Total \: \: Capital \: \: Employed = Value \: \: of \: \: Assets - Value \: \: of \: \: Liabilities \: }}}$

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❒ Calculation :-

It is given that,

• Average Profit = Rs. 60,000

• Normal Rate of Return = 10%

Using the formula of Total Value of the Firm, we get,

• $\bigstar \: \: \tt{Total \: \: Value \: \: of \: \: the \: \: firm = \dfrac{Average \: \: Profit \times 100}{Normal \: \: Rate \: \: of \: \: Return}}$

$\longrightarrow \: \tt{Total \: \: Value \: \: of \: \: the \: \: firm = \dfrac{Rs. \: 60,000 \times 100}{10 \: \%}}$

$\longrightarrow \: \tt{Total \: \: Value \: \: of \: \: the \: \: firm = Rs. \: 6,000 \times 100}$

$\longrightarrow \: \tt{Total \: \: Value \: \: of \: \: the \: \: firm = Rs. \: 6,00,000}$

Again,

• Goodwill of the firm = Rs. 1,10,000

• Total Value of the firm = Rs. 6,00,000

Using the formula of Goodwill of the firm, we get,

• $\bigstar \: \: \tt{Value \: \: of \: \: Goodwill = Total \: \: Value \: \: of \: \: the \: \: Firm - Total \: \: Capital Employed}$

$\longrightarrow \: \tt{Rs. \: 1,10,000 = Rs. \: 6,00,000 - Total \: \: Capital \: \: Employed}$

$\longrightarrow \: \tt{Total \: \: Capital \: \: Employed = Rs. \: 6,00,000 - Rs. \: 1,10,000}$

$\longrightarrow \: \tt{Total \: \: Capital \: \: Employed = Rs. \: 4,90,000}$

Now, we have,

• Total Capital Employed = Rs. 4,90,000

• Sundry Liabilities = Rs. 1,30,000

Using the formula of Total Capital Employed, we obtain,

• ✪ Total Capital Employed = Sundry Assets - Sundry Liabilities

⇒ Rs. 4,90,000 = Sundry Assets - Rs. 1,30,000

⇒ Sundry Assets = Rs. 4,90,000 + Rs. 1,30,000

∴ Sundry Assets = Rs. 6,20,000