Question

A firm earned profits of rupees 8000,rupees 10000,rupees 12000and rupees 18000 during 2015, 2016 ,2017 and 2018 respectively. The firm has average capital investment of rupees 50000.pure rate of return on investment is 10%p.a and risk premium expected is 5%.calculate the goodwill of the firm based on three years purchase of average super profit of last four years.

Answer 1

Answer:

21,000

Step-by-step explanation:

Find average profit :

8000+10000+12000+18000÷4 =12000

Calculate normal profit:

Normal profit =10% of 50000= 5000

.

Calculate super profit.

Super profit = average profit - normal. Profit

12000-5000 = 7000

Find goodwill

Goodwill = super profit x no of year purchase

7000 x 3 = 21000