The average capital employed of a firm is 400000 and the normal rate of return is 15 % the average profit to the firm is 80000 per annum if the remuneration of the partner is estimated to be 10000 per annum then on the basic of two year puchase of super profit the value of the goodwill will be
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Explanation:
Total profit of firm =400000
formulas; Normal Rate of return= capital employed×Rate of return /100
Super profit=Average profit - Normal profit
Now find,
actual average profit= 80000-10000= 70000
super profit=70000-60000=10000
Goodwill= Super profit×no.of year purchase
Goodwill=10000×2=20000
20000 is a correct answer.
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