Question

the average profit of a firm 40,000 the average capital employed by the firm is 15,00000in the same type of business the normal rate of return ended in 20/ of the capital employed calculate good will by capitalisation of supe
r profit ​

Answer 1

Explanation:

Super Profit Method:

Step 1: Calculation of Capital Employed:

Capital Employed= 300000

Step 2: Calculation of Normal Profit:

Normal Profit= 300000 * [10/100]

= 30000

Step 3: Calculation of Average Profit:

Average Profit= 50000

Step 4: Calculation of Super Profit:

Super Profit= 50000-30000

= 20000

Step 5: Calculation of Goodwill:

Goodwill= Super Profit * Number of years' of purchase

= 20000 * 3

= 60000

(ii) Capitalisation of Super Profit Method:

Step 1: Calculation of Capital Employed:

Capital Employed= 300000

Step 2: Calculation of Normal Profit:

Normal Profit= 300000 * [10/100]

= 30000

Step 3: Calculation of Average Profit:

Average Profit= 50000

Step 4: Calculation of Super Profit:

Super Profit= 50000-30000

= 20000

Step 5: Calculation of Goodwill:

Goodwill= Super profit* [100/Normal Rate of return]

= 20000 * [100/10]

= 200000