Question

A Firm earns annual Profit of Rs. 25,000/- the rate of Normal return is 10% The Assets of firm is worth 3,00,000/- and liabilities Rs. 1,25,000/- Find out the value of goodwill on the basis of two years purchase of . super Profit​

Answer 1

Given:

• The annual profit of a firm is Rs 25,000.
• The NRR [Normal Rate of Return] is 10%.
• The assets of the firm are worth Rs 3,00,000.
• The liabilities of the firm are worth Rs 1,25,000.

To find: The value of goodwill on the basis of 2 years' purchase of the super profit of the firm.

Answer:

Super profit = Average profit - Normal profit

Since only one year's profit [Rs 25,000] is given, it will be considered as the average profit. We need the normal profit.

Normal profit = Capital employed × NRR

Capital employed = Assets - Liabilities

Capital employed = Rs 3,00,000 - Rs 1,25,000

Capital employed = Rs 1,75,000

Normal profit = Rs 1,75,000 × (10 ÷ 100)

Normal profit = Rs 17,500

Super profit = Rs 25,000 - Rs 17,500

Super profit = Rs 7,500

Goodwill = Super profit × Number of years' purchase

Goodwill = Rs 7,500 × 2

Goodwill = Rs 15,000

Therefore, the goodwill of the firm is Rs 15,000.