Question

(Hint: Super Proht
21. The average profit of a firm is 50,000. Its assets and outside liabilities are 5,00,000 and
2,00,000 respectively. The normal rate of return is 10%. Find the value of goodwill if it is based
on 2 years' purchase of super profit.​

Answer 1

Answer:

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Answer 2

Answer:

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Explanation:

(i) Capitalisation of Super Profit Method:

Step 1: Calculation of Capital Employed:

Capital Employed= 5500000- 1400000

                              = 4100000

Step 2: Calculation of Normal Profit:

Normal Profit= 4100000 * [10/100]

                      = 410000

Step 3: Calculation of Average Profit:

Average Profit= 500000

Step 4: Calculation of Super Profit:

Super Profit= 500000- 410000

                    = 90000

Step 5: Calculation of Goodwill:

Goodwill= 90000 * [100/10]

               = 900000

(ii) Capitalisation of Average Profit Method:

Step 1: Calculation of Capitalised value of Profit:

Capitalised value of Profit= Profit * [100/ Normal Rate of return]

                                           = 500000 * [100/10]

                                           = 5000000

Step 2: Calculation of Capital Employed:

Capital Employed= 5500000- 1400000

                              = 4100000

Step 3:  Calculation of Goodwill:

Goodwill= Capitalised value of Profit- Capital Employed

               = 5000000- 4100000

               = 900000