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
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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.)
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