Question

44. A firm has received a profit during the last four years 9,000; 9,000; 11,000, 17,000 respectively. The firm has capital investment of 50,000. A fair rate of return on investment is 15% p.a. Calculate goodwill by capitalisation of Super profit Method' and capitalisation of Average Profit Method.​

Answer 1

Explanation:

Step 1: Calculation of Normal Profit:

Normal profit= Capital employed * [ Normal rate of return/100]

                     = 80000* [15/100]

                     = 12000

Step 2: Calculation of Average Profit:

Average Profit= [ 17000+20000+23000]/3

                       = 20000

Step 3: Calculation of Super Profit:

Super Profit= Average Profit- Normal Profit  

                   = 20000-12000

                   = 8000

Step 4: Calculation of Goodwill:

Goodwill= 8000* 2

              = 16000