Question

M/s Vijay trading company earned net profit during the last four years was follows. 1st Year Rs, 57,000 2nd Year Rs, 44,000 3rd Year Rs, 61,000 4th Year Rs, 58,000 The capital investment made by the company is Rs, 1, 50,000. Normal Rate of return on capital is 20%. The remuneration of the partners during this period is Rs, 500 p.m. Good will is valued at 2years purchase of Average Super profit of above mentioned period.​

Answer 1

Answer:

Step 1: Calculation of Average Profit:

Average Profit= [ 54000+42000+39000+67000+59000]/5

= 261000/5

= 52200

Step 2: Calculation of Capitalised value of Profit:

Capitalised Value of profit= [ Profit * 100]/ Normal Rate Of Return

= [52200*100]/20

= 261000

Step 3: Calculation of Goodwill:

Goodwill= 261000-200000

= 61000