Question

Form the following particulars, calculate value of goodwill of a firm by applying Capitalisation of Average Profit Method:
(i) Profits of last five consecutive years ending 31st March are: 2018 – ₹ 54,000; 2017 – ₹ 42,000; 2016 – ₹ 39,000; 2015 – ₹ 67,000 and 2014 – ₹ 59,000.
(ii) Capitalisation rate 20%.
(iii) Net assets of the firm ₹ 2,00,000.

Answer 1

Solution:

Goodwill = Capitalised Value of Profit - Net Assets (Capital Employed)

Average Profit = $\frac{54,000 + 42, 000 + 39,000 + 67, 000 + 59, 000}{5}$

                        = $\frac{2, 61, 000}{5}$

                        = 52,200

Capitalised Value of Profit = Profit x Rate of Return = 52,200 x $\frac{100}{20}$  

                                                                                    = 2,61,000

Capitalised Value of Profit = 2,61,000

Net Assets (Capital Employed) =2, 00,000

Goodwill = Capitalised Value of Profit - Net Assets (Capital Employed) Goodwill = 2, 61, 000 - 2, 00, 000 = 61, 000  

Answer 2

Answer:

this question with full explanation