Question

A business has earned average profit of ₹100000 during the last few years and the normal rate of return in similar business is 10%. Find out the value of goodwill by:
1) Capitalization Of super profit method
2) Super profit method if the goodwill is valued at 3 years purchase of Super profit

Assets of the business were ₹100000 and its external liabilities ₹180000

Answer 1

Answer:

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Answer 2

Answer:

avg profit 100000

normal rate 10%

1. goodwill= SP *100/RATE

SP= AP-NP

AP= CAPITAL EMPLOYED*RATE/100

CAPITAL EMPLOYED= ASSETS-LIABILTIES

=1000000-180000

= 820000

NP= 820000*10/100

= 82000

SP= 100000-82000

=18000

GOODWILL= SP*100/ RATE

=18000*100/10

=180000

2. GOODWILL= SP* NO OF PURCHASE YEAR

= 18000*3

= 54000