Calculate goodwill when average profit of last 3 years is Rs 16000, capital employed is Rs100000 and normal rate of return is 10% a) at two years'purchase of average profit of last three years b) at two years purchase of super profit
Answers
Answer:
(i) 3 Years' purchase of Average Profit method:
Step 1: Calculation of Average Profit:
Average Profit=[(200000-100000)+(180000-100000)+(160000-100000)]/3
= 80000
Step 2: Calculation of Goodwill:
Goodwill= 80000 * 3
= 240000
(ii) 3 Years' purchase of Super Profit method:
Step 1: Calculation of Capital Employed:
Capital Employed= total assets- external liabilities
= 700000-100000
= 600000
Step 2: Calculation of Normal Profit:
Normal Profit= 600000* [10/100]
= 60000
Step 3: Calculation of Average Profit:
Average Profit=[(200000-100000)+(180000-100000)+(160000-100000)]/3
= 80000
Step 4: Calculation of Super Profit:
Super Profit= 80000-60000
= 20000
Step 5: Calculation of goodwill:
Goodwill= 20000 * 3
= 60000
(iii) Capitalization of Super Profit Method:
Step 1: Calculation of Capital Employed:
Capital Employed= total assets- external liabilities
= 700000-100000
= 600000
Step 2: Calculation of Normal Profit:
Normal Profit= 600000* [10/100]
= 60000
Step 3: Calculation of Average Profit:
Average Profit=[(200000-100000)+(180000-100000)+(160000-100000)]/3
= 80000
Step 4: Calculation of Super Profit:
Super Profit= 80000-60000
= 20000
Step 5: Calculation of goodwill:
Goodwill= Super Profit * [100/Normal Rate of return]
= 20000*[100/10]
= 200000
(iv) Capitalization of Average Profit method:
Step 1: Calculation of Average Profit:
Average Profit=[(200000-100000)+(180000-100000)+(160000-100000)]/3
= 80000
Step 2: Calculation of capitalized value of profit:
Capitalized value of profit= 80000*[100/10]
= 800000
Step 3: Calculation of Capital Employed:
Capital Employed= total assets- external liabilities
= 700000-100000
= 600000
Step 4: Calculation of goodwill:
Goodwill= 800000-600000
= 200000
Explanation:
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Given-:
To find-:
(i) 3 Years' purchase of Average Profit method:
- Step 1: Calculation of Average Profit:
Average Profit=[(200000-10000 0)+(180000-100000)+(160000-100000)]/3
= 80000
- Step 2: Calculation of Goodwill:
Goodwill= 80000 * 3
= 240000
- (ii) 2 Years' purchase of Super Profit method:
- Step 1: Calculation of Capital Employed:
Capital Employed= total assets- external liabilities...
= 700000-100000
= 600000
- Step 2: Calculation of Normal Profit:
Normal Profit= 600000* [10/100]
= 60000
- Step 3: Calculation of Average Profit:
Average Profit=[(200000-100000)+ (180000-100000) +(160000-100000)]/3
= 80000
- Step 4: Calculation of Super Profit:
Super Profit= 80000-60000
= 20000
- Step 5: Calculation of goodwill:
Goodwill= 20000 * 3
= 60000