Question

Determine the value of goodwill of Prabha and Prabhu's firm on the basis of capitalised super
profit method.
(1) Capital employed : 39,00,000
(2) Expected rate of return : 12 %
(3) Last five years profit :
Year profit
2012-13 100000
2013-14 140000
2014-15 130000
2015-16 150000
2016-17 180000​

Answer 1

VALUE OF GOODWILL = 2,66,667.

Explanation:

CAPITALISED SUPER PROFIT METHOD

• Goodwill = Super Profits x (100/ Normal Rate of Return)
• Super Profit = Actual or Average profit – Normal Profit
• Average Profit = Total Profit / No.of years
• Normal Profit = Capital Employed x (Normal Rate of Return/100)

1) Calculation of AVERAGE PROFIT

   Average Profit = Total Profit/ No. of years

   Average Profit = 1,00,000 + 1,40,000 + 1,30,000 + 1,50,000 + 1,80,000 / 5

   Average Profit = 1,40,000

2) Calculation of NORMAL PROFIT:

     Normal Profit = Capital Employed x (Normal Rate of Return/100)

     Normal Profit = 9,00,000 x ( 12/100)

     Normal profit = 1,08,000

2) Calculation of SUPER PROFIT:

    Super Profit = Actual or Average profit – Normal Profit

    Super Profit = 1,40,000 - 1,08,000

    Super Profit = 32,000

3) Calculation of VALUE OF GOODWILL:

    Goodwill = Super Profits x (100/ Normal Rate of Return)

    Goodwill = 32,000 x (100 / 12)

   Goodwill = 2,66,667 (approx.)