Question

capitalisation Method
30. From the following information, calculate value of goodwill of the firm by applying Capitalisation Method:
Total Capital of the firm * 16,00,000.
Normal rate of return 10%.
Profit for the year * 2,00,000.​

Answer 1

Explanation:

Goodwill = capitalised value of Profit - total capital

capitalised value of Profit = profit × 100 /Normal rate of return

= 2,00,000 × 100/10

= 20,00,000

Total Capital of the firm = 16,00,000

Goodwill = capitalised value of Profit - total capital

= 20,00,000 - 16,00,000

= 4,00,000

Therefore, Value of goodwill of the firm = Rs. 4,00,000