The average net profit expected in future by Priti Mehta and Co. are Rs.
30,000 per year. The average capital employed in the business by the firm Rs.
2,00,000. The normal rate of return on the capital employed in a similar
business is 10%. Calculate the goodwill of the firm by: (3)
A. Super profit method on the basis of two years’ purchase.
B. Capitalization of super profit method.
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Answer:
(i)Average net profit = 30,000
normal rate of return = 10%
average capital employed = 2,00,000
Normal profit = 2,00,000 × 10% = 20,000
super profit = Average profit-Normal profit
= 30,000-20,000
=10,000
Goodwill= 10,000×2
=20,000
(ii)
super profit = 10,000
Goodwill = 10,000×100/10= 1,00,000
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