Question

If average capital employed in a firm is ₹8,00,000, average of actual profits is ₹1,80,000 and normal rate of return is10%, then value of goodwill as per capitalization of average profits is: (A) ₹10,00,000 (B) ₹18,00,000 (C) ₹80,00,000 (D) ₹78,20,000​

Answer 1

Answer:

Option (A) : ₹ 10,00,000

Explanation:

Solution :

★ Goodwill = Capitalised Value of Profit - Capital Employed

• Normal Rate of Return = 10 %

• Capitalised Value of Profit = Average Profit × (100/Normal Rate of Return)

= 1,80,000 × (100/10)

= 18,00,000

Capitalised Value of Profit = ₹ 18,00,000

• Capital Employed = ₹ 8,00,000

★ Goodwill = Capitalised Value of Profit - Capital Employed

= 18,00,000 - 8,00,000

= 10,00,000

Goodwill = ₹ 10,00,000

Therefore, Option : (A) ₹ 10,00,000

Value of Goodwill as per capitalization of Average profits is ₹ 10,00,000

Answer 2

Answer:

(A) 10.00,000

Explanation:

Actual profit = 1,80,000

Normal rate = 10%

Now,

Capitalised value of Avg. profit =

Avg Profit * 100/Normal rate of return

1,80,000*100/10

= 18,00,000

Goodwill = 10,00,000