Question

a firm has earned 100000 as average profit during the last few years.normal rate of return in this class of business is 10% find our goodwill according to capitalisation of super profit method if the value of assets amounted to 1000000 and liabilities amounted to 200000 ​

Answer 1

Answer:

2,00,000

Explanation:

a firm has earned 100000 as average profit during the last few years.normal rate of return in this class of business is 10% find our goodwill according to capitalization of super profit method if the value of assets amounted to 1000000 and liabilities amounted to 200000 ​

The above mentioned data states:

Average profit earned by the firm: 1,00,000

Normal rate of return in the given class: 10%

Using the formula,

Capitalized value of average profit = average profits X (100/ Normal rate of return)

From this we have,

1,00,000 X 100/10

= 10,00,000

Capital employed = Assets - Liabilities

= 10,00,000 - 2,00,000

= 8,00,000

Goodwill = Capitalized value of the average profit - Capital employed

= 10,00,000 - 8,00,000

= 2,00,000