Question

A firm earns ₹1,00,000. The normal rate of return is 10%. The assets of the company amounted to ₹11,00,000 and liabilities to ₹1,00,000. Value of goodwill by the capitalisation of average actual profit will be
200000


10000


5000



100000​

Answer 1

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Answer 2

Answers

Explantion-

(i) Capitalisation of Super Profit Method:

Step 1: Calculation of Capital Employed:

Capital Employed= 5500000- 1400000

= 4100000

Step 2: Calculation of Normal Profit:

Normal Profit= 4100000 * [10/100]

= 410000

Step 3: Calculation of Average Profit:

Average Profit= 500000

Step 4: Calculation of Super Profit:

Super Profit= 500000- 410000

= 90000

Step 5: Calculation of Goodwill:

Goodwill= 90000 * [100/10]

= 900000

(ii) Capitalisation of Average Profit Method:

Step 1: Calculation of Capitalised value of Profit:

Capitalised value of Profit= Profit * [100/ Normal Rate of return]

= 500000 * [100/10]

= 5000000

Step 2: Calculation of Capital Employed:

Capital Employed= 5500000- 1400000

= 4100000

Step 3: Calculation of Goodwill:

Goodwill= Capitalised value of Profit- Capital Employed

= 5000000- 4100000

= 900000