Question

The following were the profits of a firm for the last three years:
Year ending 31st march (profit)
2012 4,00,000 including abnormal gain of ₹50,000)
2013 5,00,00 after changing an abnormal loss of ₹1,00,000)
2014 4,50,000 (Exculding ₹ 50,000 payable on the insurance of plant)
Calculate the value of firm's goodwill on the basis of two years purchase of the average profits for last three years.
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Answer 1

Answer:

thanks for free point s

Answer 2

ANSWER

Step 1: Calculation of Normal profit:

Normal Profit = Capital employed*[ Normal rate of return/100]

= 400000 *[15/100]

= 60000

Step 2: Calculation of Average Profit

2016-- 170000-100000= 70000

2017-- 200000-100000= 100000

2018-- 230000-100000= 130000

Hence, Average Profit= [130000+100000+70000]/3

= 100000

Step 3: Calculation of Super Profit:

Super Profit = Average profit - Normal Profit

Super Profit= 100000-60000

= 40000

Step 4: Calculation of Goodwill:

Goodwill= 40000* 2

= 80000