Question

capital invested by A rupees 1000000​

Answer 1

Calculation of goodwill under capitalization basis:

Capital employed = Rs. 100000

Normal rate of return = 15%

Average profit = Rs. 20000

Normal value of business = Average profit/ Normal rate of return

Normal value of business = Rs. 20000/ 15%

Normal value of business = Rs. 133333

Goodwill = Normal value of business - Capital employed

Goodwill = Rs. (133333 - 100000) = Rs. 33333

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