Question

a business has earned evarge profit of Rs 100000 during the last few years. find out the value of goodwill by capitalaition method given thats the assets of the business are Rs 1000000 and its extranal laibailities are 180000. the norml rate of return is 10%?​

Answer 1

Answer:

capital employed = Total assets - Total liability capital emplyod = 1000000 - 180000 = 820000.

value of business = 100/ Normal rate of return of Average profit ( 100/ 10 of 100000) = 1000000. Goodwill = value of business - capital employed Goodwill. = 1000000 - 820000 = 180000.