Question

Given the normal profit of a firm is ₹ 50,000 and its average profits are ₹ 60,000. What is the value of goodwill based on 3 years purchase of the super profits of the business?​

Answer 1

Answer:

THIS IS THE ANSWER !

Explanation:

) Super Profit Method:

Step 1: Calculation of Capital Employed:  

Capital Employed= 300000

Step 2: Calculation of Normal Profit:

Normal Profit= 300000 * [10/100]

                     = 30000

Step 3: Calculation of Average Profit:

Average Profit= 50000

Step 4: Calculation of Super Profit:

Super Profit= 50000-30000

                   = 20000

Step 5: Calculation of Goodwill:

Goodwill= Super Profit * Number of years' of purchase

              = 20000 * 3

              = 60000

(ii) Capitalisation of Super Profit Method:

Step 1: Calculation of Capital Employed:  

Capital Employed= 300000

Step 2: Calculation of Normal Profit:

Normal Profit= 300000 * [10/100]

                     = 30000

Step 3: Calculation of Average Profit:

Average Profit= 50000

Step 4: Calculation of Super Profit:

Super Profit= 50000-30000

                   = 20000

Step 5: Calculation of Goodwill:

Goodwill= Super profit* [100/Normal Rate of return]

              = 20000 * [100/10]

              = 200000