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.
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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
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