Question

A firm earned net profits during the last three years as:
Year
2015-16
2016-17
Profit
36.000
40.000
46,000 (including dividend received Rs. 2.000)
The capital investment of the firm is Rs. 2,00,000. A fair return on the capital having regard to the risk
involved is 10%. Calculate the value of goodwill on the basis of 3 years purchase of the super profit for
the last three years.​

Answer 1

Answer:

actual profit for 2018-18 46,000-2000 = 44,000

average profit = 36,000+40,000+44,000 = 1,20,000/3 = 40,000

normal profit = capital employed × rate of return

= 2,00,000×10/100

= 20,000

super profit = average profit - normal profit

= 40,000 - 20,000

= 20,000

goodwill = super profit × no. of year purchase

= 20,000 × 3

= 60,000

goodwill = 60,000