Calculate goodwill, when Average Profits of a firm is Rs. 60,000. The total assets of firm are Rs. 8,00,000. Value of other liabilities is Rs 5,00,000.Average rate of return is 12%
Answers
Answer:
1. 240000
2. 60000
3. 200000
4. 200000
Explanation:
(i) 3 Years' purchase of Average Profit method:
1: Calculation of Average Profit:
Average Profit=[(200000-100000)+(180000-100000)+(160000-100000)]/3
= 80000
2: Calculation of Goodwill:
Goodwill= 80000 * 3
= 240000
(ii) 3 Years' purchase of Super Profit method:
1: Calculation of Capital Employed:
Capital Employed= total assets- external liabilities
= 700000-100000
= 600000
2: Calculation of Normal Profit:
Normal Profit= 600000* [10/100]
= 60000
3: Calculation of Average Profit:
Average Profit=[(200000-100000)+(180000-100000)+(160000-100000)]/3
= 80000
4: Calculation of Super Profit:
Super Profit= 80000-60000
= 20000
5: Calculation of goodwill:
Goodwill= 20000 * 3
= 60000
(iii) Capitalisation of Super Profit Method:
1: Calculation of Capital Employed:
Capital Employed= total assets- external liabilities
= 700000-100000
= 600000
2: Calculation of Normal Profit:
Normal Profit= 600000* [10/100]
= 60000
3: Calculation of Average Profit:
Average Profit=[(200000-100000)+(180000-100000)+(160000-100000)]/3
= 80000
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) Capitalisation of Average Profit method:
Step 1: Calculation of Average Profit:
Average Profit=[(200000-100000)+(180000-100000)+(160000-100000)]/3
= 80000
Step 2: Calculation of capitalised value of profit:
Capitalised 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