Question

23. The net profit of a business, after providing for taxation, for the past five years are

*80000, 85,000, 92,000 and 1,05,000, and 1,18,000 The capital employed in the business is 8,00,000
The normal rate of return expected in this type of business is 10%. Calculate the value of goodwill on the basis of
(a) 5 years purchase of Super Profit Method.
(b) Capitalisation of Super Profit Method
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Answer 1

Answer:

average profit= (80000+85000+92000+105000+118000)/5 = 96000

Normal profit = 10%of 800000

= 80000

super profit = AP-NP

= 16000

1. goodwill = 5*16000

= 80000

2. Goodwill on the basis of capitalisation of super profit method

Goodwill= SP* 100/ normal rate of return

= 16000/10% = 160000