Question

If average profits of a firm are Rs 74000, normal rate of return is 10%, good will is valued at rs 1,20,000, capital employed will be .​

Answer 1

Answer:

Calculation of goodwill under capitalization basis-

Capital employed = Assets - Liabilities

Capital emplyed = Rs. (1000000 - 425000)

Capital emplyed = Rs 575000

Normal value of business = Average profit/capitalization rate

Normal value of business = Rs. 120000/ 12%

Normal value of business = Rs. 1000000

Goodwill = Normal value of business - capital employed

Goodwill = Rs. 1000000 - Rs. 575000

Goodwill = Rs. 425000