If capital employed of a firm is 500000 and normal rate of return is 12% average profit earned by the form is 120000 and its estimated cost of management is 30000 per annum the Goodwill of the form based on capitalisation of super profit method will be what
Answers
Answer:
(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
Answer:
Rs. 5,00,000
Explanation:
Capitalisation of super profit:-
Normal Profit = Capital employed×NRR/100
( NRR = Normal Rate Of Return )
Normal Profit = 5,00,000×12/100
= 60,000
Average Profit = 1,20,000
Super Profit = Average Profit - Normal Profit
= 1,20,000 - 60,000
= 60,000
Goodwill = Super Profit ×100/NRR
= 60,000 × 100/12
= 5,00,000