Profits of 3 years are 40000,50000,30000 ,No of purchase year is 4 capital is 400000 and rate of return is 30%.
a) Calculate average profit
b) Calculate normal profit
c) Calculate goodwill.
Answers
Answer:
I hope it will help you
Explanation:
(i) Capitalisation of Super Profit Method:
Step 1: Calculation of Capital Employed:
Capital Employed= Assets- External Liabilities
= 4000000- 720000
= 3280000
Step 2: Calculation of Normal Profit:
Normal Profit= 3280000 * [10/100]
= 328000
Step 3: Calculation of Average Profit:
Average Profit= 400000
Step 4: Calculation of Super Profit:
Super Profit= 400000- 328000
= 72000
Step 5: Calculation of Goodwill:
Goodwill= Super Profit * [100/Normal Rate Of Return]
= 72000 * [100/10]
= 720000
(ii) Super Profit Method:
Step 1: Calculation of Capital Employed:
Capital Employed= Assets- External Liabilities
= 4000000- 720000
= 3280000
Step 2: Calculation of Normal Profit:
Normal Profit= 3280000 * [10/100]
= 328000
Step 3: Calculation of Average Profit:
Average Profit= 400000
Step 4: Calculation of Super Profit:
Super Profit= 400000- 328000
= 72000
Step 5: Calculation of Goodwill:
Goodwill= Super Profit * Number of years' of purchase
= 72000 * 3
= 216000
Was this answer helpful?
upvote
64
downvote
3
SIMILAR QUESTIONS
star-struck
The profits for the last three years are: 2002-03 Rs 42,500; 2003-04 Profits Rs 56,000 and 2004-05 Profits Rs 68,000. The total liabilities of the firm are Rs 10,00,000 of which outsiders' liabilities Rs 5,00,000. The rate of interest expected from capital invested is 10%. Calculate the value of goodwill on capitalisation basis taking weighted average of Net Profit.
Easy
View solution
>
The average net profit expected in future by XYZ firm is Rs.36,000 per year. Average capital employed in the business by the firm is Rs. 2,00,000. The normal rate of return from capital invested in his class of business is 10%. Remuneration of the partners is estimated to be Rs. 6,000 p.s. Find out the value of goodwill on the basis of two years purchase of super profit.
Easy
View solution
>
View more
MORE FROM CHAPTER
Reconstitution of a Partnership Firm - Admission of a Partner
View chapter
>
PRACTICE MORE QUESTIONS
Easy Questions
100 Qs
>
Medium Questions
580 Qs
>
Hard Questions
111 Qs
>