Question

Find out the goodwill by capitalization method from the following information: Normal rate of return 10% ,profit for the lasts three years are 30000,40000,and 50000respectively. Non recurring income of 3000 included in the above mentioned profit of 30000 .Average capital employed is 300000.

Answer 1

Hey Mate!!

Here is ur solution,

Average profit = (30,000 - 3,000 ) + 40,000 + 50,000/ 3 = 1,17,000 / 3 = 39,000

Normal profit = capital employed × normal rate of return/100

= 3,00,000 × 10/ 100

= 30,000

Super profit = Average profit - Normal profit

= 39,000 - 30,000

= 9,000

Goodwill = Super profit × 100/Normal rate of return

= 9,000 × 100/10

= 90,000

Hope this helps u...