Question

A business has earned average profits of Rs.80000 during the last few years. Normal rate of return

is 10%. Find out Goodwill by capitalization method, given that the assets of the firm amounts to Rs.

750000 and liabilities Rs. 100000.​

Answer 1

Explanation:

Step 1: Calculation of Capital Employed:

Capital Employed= Assets- External Liabilities

                              = 1000000- 180000

                              = 820000

Step 2: Calculation of Capitalised value of Profit:

Capitalised Value of Profit= Profit * [100/rate of return]

                                            = 100000 * [100/10]

                                            = 1000000

Step 3: Calculation of Goodwill:

Goodwill= Capitalised value of profit- Capital employed

               = 1000000-820000

               = 180000

Answer 2

Answer:

1 62 000 is the capital

goodwill = 76000