Jigil and Kiran are partners in a firm. Their capitals are: Jigil Rs.3,00,000 and Kiran Rs.2,00,000. During the year ended 31 March 2010 the firm earned a profit of Rs.1,50,000. Assuming that the normal rate of return is 20%, calculate the value of goodwill of the firm: By Capitalisation Method: and By Super Profit Method if the goodwill is valued at 2 years' purchase of super profit.
Answers
Answer:
Total Capitalised Value of the Firm =Average Profit ×100Normal Rate of Return
=Rs.1,50,000×10020=Rs.7,50,00
Goodwill = Total Capitalised Value of Business - Capital Employed
= Rs. 7,50,000 - Rs. 5,00,000* = Rs. 2,50,000.
*Captial Employed = Capitals of J and K = Rs. 3,00,000 + Rs. 2,00,000 = Rs. 5,00,000.
(ii) Super Profit Method:
Normal Profit = Capital Employed × Normal Rate of Return /100
= Rs. 5,00,000 × 20/100 = Rs. 1,00,000
Average Profit = Rs. 1,50,000
Super Profit = Average Profit - Normal Profit
= Rs. 1,50,000 - Rs. 1,00,000 = Rs. 50,000
Goodwill = Super Profit × Number of Years' Purchase
= Rs. 50,000 × 2 = Rs. 1,00,000.
Explanation:
Solution :
- By Capitalisation Method :
• Capital Employed = Jigil's Capital + Kiran's Capital
= 3.00,000 + 2,00.000
= 5,00,000
Capital Employed = Rs. 5,00,000
• Capitalised Value = Actual profit × (100/Normal Rate of Return)
= 1,50,000 × (100/20)
= 7,50,000
Capitalised Value = Rs. 7,50,000
★ Goodwill = Capitalised Value – Capital Employed
= 7,50,000 - 5,00,000
= 2,50,000
Goodwill = Rs. 2,50,000
___________________________
- By Super Profit Method :
Capital Employed = Rs. 5,00,000
• Normal Profit = Capital Employed × (Normal Rate of Return/100)
= 5,00,000 × (20/100)
= 1,00,000
Normal Profit = Rs. 1,00,000
• Super Profit = Average Profit - Normal Profit
= 1.50,000 - 1,00,000
= 50,000
Super Profit = Rs. 50,000
★ Goodwill = Super Profit × Number of Years' Purchase
= 50,000 × 2
= 1,00,000
Goodwill = Rs. 1,00,000