Question

find out goodwill by capitalization method from the following information.
1. avg. capital employed rs. 600000
2. normal rate of return 10% 3. profit for the last 3year are rs.60000; rs.80000and rs. 100000respectively.
4. non recurring income of rs. 6000 is include in the above mentioned profit of rs. 60000.​

Answer 1

Answer:

1,80,000

Explanation:

Cap Employed = 6,00,000

NRR=10%

Profit for last 3 years = 60,000 , 80,000 , 1,00,000

Now as recurring income of 6,000 is also included and it is a income of one time, it will be deducted from the first year. i.e 60,000-6,000 = 54,000

Average Profit = (54,000 + 80,000 + 1,00,000)/3

AP = 78,000

GOODWILL BY CAPITALISATION METHOD = Net Capitalised Value of the firm - Avg Cap Employed

Net Capitalised Value of the firm = (Average Profit X 100)/NRR

= (78,000 X 100)/10

=7,80,000

Goodwill = 7,80,000-6,00,000

=1,80,000