Question

afirm earned a profit of rs 20000 and has invested capital amounting to 1,50,000.if the same class of business normal rate of earnings is 10%.Calculate goodwill according to capitalisation methods
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Answer 1

Answer:

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Explanation:

Calculation of goodwill under capitalisation basis:  

Capital employed = Rs. 800000

Rate of return = 15%

Average profit = Rs. 1200000

Normal value of business = (Average profit/ Rate of return) * 100

Normal value of business = Rs. (1200000/15) * 100

Normal value of business = Rs. 8000000

Goodwill = Normal value of business - capital employed

Goodwill = Rs. (8000000 - 800000)

Goodwill = Rs. 7200000