Question

a firm average profit is 140000 it includes an abnormal profit pf 10 000 capital invested in the bussines isrs 1100000 and normal rate of return is 10 % calculate goodwill on the basis odf 4 years of super profits​

Answer 1

Answer:

Goodwill on the basis of super profits​ is 80,000

Explanation:

Given,

Firm average profit is 1,40,000 includes abnormal profit of 10,000

capital invested is 11,00,000

Number of years purchase = 4 years

Normal rate of return (NRR) is 10 %

Normal profit = Capital invested * NRR

                       = 1100000 * 10%

                       = 1,10,000

Average Profit = Average profit earned - Abnornal profit

                         = 1,40,000 - 10,000

                         = 1,30,000

Super profit = Average Profit -  Normal profit

                    = 1,30,000 - 1,10,000

                    = 20,000

Goodwill = super profit * no.of Years purchase

                = 20,000 * 4

                = 80,000