Question

31. Calculate goodwill if a company earns a net profit of 12,000 with a capital of 60,000. The
normal rate of return in the business is 10%. Use capitalization of super profits method to value
the goodwill.
(a) * 60,000
(b) 12,000
(c) 6,000
(d) None of these​

Answer 1

Step-by-step explanation:

Calculation of goodwill under capitalisation basis:

Capital employed = Rs. 800000

Rate of return = 15%

Average profit = Rs. 1200000

Normal value of business = (Average profit/ Rate of return) * 100

Normal value of business = Rs. (1200000/15) * 100

Normal value of business = Rs. 8000000

Goodwill = Normal value of business - capital employed

Goodwill = Rs. (8000000 - 800000)

Goodwill = Rs. 7200000

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