Question

A Partnership firm has earned average profits of Rs. 1,20,000 during the last few years and the normal rate of return in a similar business is 15%. Ascertain the value of goodwill by the capitalization of the average profits method, given that the value of net assets of the business is Rs.7,20,000​

Answer 1

Answer:

Average profit = Rs 1,00,000. Capitalisation of average profit = 1,00,000×10010=Rs 10,00,000. Capital employed in the business = Rs 8,20,000.