A firm earns a profit of Rs 30,000 per year. In the same business, a 10% return is generally
expected. The total assets of the firm are Rs 2,50,000. The value of outsiders’ liabilities is Rs
40,000. Find the value of Goodwill.
Answers
ANSWER
(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
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