Question

If average profit of a firm are 74000 normal rate of return 10 % goodwill is valued at 120000 find capital employed

Answer 1

Answer:

Step 1: Calculation of Capital Employed:

Capital employed= 1200000

Step 2: Calculation of Normal Profit:

Normal Profit= 1200000 * [10/100]

                     = 120000

Step 3: Calculation of Average Profit:

Average Profit= 200000

Step 4: Calculation of Super Profit:

Super Profit= 200000- 120000

                   = 80000

Step 5: Calculation of Goodwill:

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

              = 80000 * [100/10]

              = 800000

Explanation: