Question

Capitalistion method a earn rs, 1,20,000 as its annual profit the rate of normal profit beng 10% the assets of the firms amount to ra 14,40,000 and liabilities to Rs 4,80,0000 find out the value of good will by capitalization method​

Answer 1

Answer:

Capitalisation of Super Profit Method:

Step 1: Calculation of Capital Employed:

Capital Employed= 5500000- 1400000

                              = 4100000

Step 2: Calculation of Normal Profit:

Normal Profit= 4100000 * [10/100]

                      = 410000

Step 3: Calculation of Average Profit:

Average Profit= 500000

Step 4: Calculation of Super Profit:

Super Profit= 500000- 410000

                    = 90000

Step 5: Calculation of Goodwill:

Goodwill= 90000 * [100/10]

               = 900000

(ii) Capitalisation of Average Profit Method:

Step 1: Calculation of Capitalised value of Profit:

Capitalised value of Profit= Profit * [100/ Normal Rate of return]

                                           = 500000 * [100/10]

                                           = 5000000

Step 2: Calculation of Capital Employed:

Capital Employed= 5500000- 1400000

                              = 4100000

Step 3:  Calculation of Goodwill:

Goodwill= Capitalised value of Profit- Capital Employed

               = 5000000- 4100000

               = 900000