Question

Average profit of GS & amp Co. is ₹ 50,000 per year. Average capital employed in the business is ₹ 3,00,000. If the normal rate of return of capital employed is 10%, calculate goodwill of the firm by:
(i) Super Profit Method at three years purchase; and
(ii) Capitalisation of Super Profit Method.

Answer 1

Solution:

(1) Goodwill = Super Profit x Numbers of Years Purchase

Goodwill = 20,  000 x 3 = 60, 000  

(2) Goodwill = Super Profit x $\frac{Normal Rate of Retrun}{100}$

Goodwill = 20, 000 x $\frac{100}{10}$ = 2 ,00, 000  

Working Notes:

Calculation Super Profit

Average Profit =

                             $\frac{Total Profit of Previous years}{No. of years}$

Average Profit = 50, 000  

Normal Profit = Capital Employed x $\frac{Normal Rate of Return }{100}$

Normal Profit = 3, 00, 000 x $\frac{10}{100}$ -= 30, 000  

Super profit = 50,000 - 30,000 =20,000

Answer 2

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