Question

The capital employed in a firm is1000000 and the market rate of interst 15per cent .annual salary of the partners is80000 .the profits of the last three years before partners salary were300000,400000,500000.of the average super profits of last two years.

Answer 1

Answer:

Calculation of goodwill under capitalization basis:

Capital employed = Rs. 100000

Normal rate of return = 15%

Average profit = Rs. 20000

Normal value of business = Average profit/ Normal rate of return

Normal value of business = Rs. 20000/ 15%

Normal value of business = Rs. 133333

Goodwill = Normal value of business - Capital employed

Goodwill = Rs. (133333 - 100000) = Rs. 33333