Question

Calculation of Goodwill : Super Profit Method
A firm has a capital of 90,000. The normal profit is estimated at 10%. If the actual profit of the fire
is 13,000. Calculate the value of goodwill on the basis of three years' purchase of super profit
.
Ans. Value of Goodwill 12,000]
(Hint: Super Profit 4,000.]
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Answer 1

Answer:

normal profit = 90,000×10/100 = 9000

super profit = 13,000 - 9,000 = 4,000

goodwill = 4,000×3 = 12,000

Answer 2

Solution!!

Given:

→ Total Capital = Rs 90,000

→ Normal Rate of Return = 10%

→ Average Profit = Rs 13,000

→ Number of years' purchase = 3

To calculate:

→ Goodwill of the firm

Formulae:

→ Capital Employed = Total Capital + Reserves

→ Normal Profit = Capital Employed × Normal Rate of Return

→ Super Profit = Average Profit - Normal Profit

→ Goodwill = Super Profit × Number of years' purchase

Calculations:

Capital Employed = Rs 90,000 + 0

Capital Employed = Rs 90,000

Normal Profit = 90,000 × 10/100

Normal Profit = Rs 9,000

Super Profit = Rs 13,000 - Rs 9,000

Super Profit = Rs 4,000

Goodwill = 4,000 × 3

Goodwill = Rs 12,000

Therefore, the goodwill of the firm is equal to Rs 12,000.