Question

earned net profit during the last three years as follows 1st 36,000 2nd 40,000 3rd 44,000 the capital invest of the firm is RS.1,00,000 A fair return on the capital,having regard to the risk involved,is 10% Calculate the value of goodwill on the basis of '3 years' purchase of super profit​

Answer 1

Answer:

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Answer 2

Goodwill on the basis of '3 years' purchase of super profit is Rs.68,001.

Given: Net profit for last 3 years  1st 36,000 2nd 40,000 3rd 44,000.

To Find: Value of goodwill on the basis of '3 years' purchase of super profit​.

Solution: To calculate the value of goodwill on the basis of '3 years' purchase of super profit, we first need to calculate the average super profit earned by the firm over the last three years. Super profit is the excess profit earned over and above the normal profit which is considered as a fair return on the capital invested.

The fair return on the capital invested is 10% of Rs.1,00,000 = Rs.10,000.

Average super profit earned by the firm over the last three years = (36,000 + 40,000 + 44,000) / 3 - 10,000 = Rs.22,667

Now, we can calculate the value of goodwill on the basis of '3 years' purchase of super profit.

Goodwill = Average super profit x Number of years' purchase

Number of years' purchase = 3

Goodwill = Rs.22,667 x 3 = Rs.68,001

Therefore, the value of goodwill on the basis of '3 years' purchase of super profit is Rs.68,001.

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