Question

A firm invested 1,00,000 as capital. The normal rate of return is

10%. It earned net profit during the last 4 years as follows : 2009

– 29,000; 2010 – 32,000; 2011 – 26,000; 2012 – 33,000; Show the

value of goodwill on the basis of 5 years purchase of super profit​

Answer 1

Answer:

Step 1: Calculation of Normal profit:

Normal Profit = Capital employed*[ Normal rate of return/100]

                       = 400000 *[15/100]

                       = 60000

Step 2: Calculation of Average Profit 

2016-- 170000-100000= 70000

2017-- 200000-100000= 100000

2018-- 230000-100000= 130000

Hence, Average Profit= [130000+100000+70000]/3

                                     = 100000

Step 3: Calculation of Super Profit:

Super Profit = Average profit - Normal Profit

Super Profit= 100000-60000

                    = 40000

Step 4: Calculation of Goodwill:

Goodwill= 40000* 2

               = 80000