Question

- Compute the value of goodwill at two years
purchase of the super
profits from the following information:
Average Profits = Rs. 21,500; Capital Employed
= Rs. 2,00,000;
and Normal Rate of Return
cent.
2
10 per​

Answer 1

Given:

• Average profit - Rs 21,500
• Capital employed - Rs 2,00,000
• NRR [Normal Rate of Return] - Rs 10%
• Goodwill is to be valued at 2 years' purchase of the super profits.

To find: The value of goodwill.

Answer:

Normal profit = Capital employed × (NRR ÷ 100)

Normal profit = Rs 2,00,000 × (10 ÷ 100)

Normal profit = Rs 20,000

Super profit = Average profit - Normal profit

Super profit = Rs 21,500 - Rs 20,000

Super profit = Rs 1,500

Goodwill = Super profit × Number of years' purchase

Goodwill = Rs 1,500 × 2

Goodwill = Rs 3,000

Therefore, the value of goodwill is Rs 3,000.