If actual average profit is Rs. 30,000 and normal rate of return is 12%, then capitalization value of the profits will be?
Answers
Answer:
(i) 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
ANSWER IS 2,50,000
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