Question

The net profit of a Firm for the last three years are given below:

2018-19 : Rs. 1,30,000
2019-20 : Rs. 80,000
2020-21 : Rs. 5,000 (loss)

The above stated profits include the following:

(a) Profits of 2018-19 includes Rs. 20,000 profit on sale of machinery and Rs. 10,000 profit on consignment sale.

(b) Loss of 2020-21 is arrived at after considering an abnormal loss of Rs. 25,000 due to non-recovery of full claim from Insurance Company against loss of goods by fire.

The capital invested in the business is Rs. 8,00,000 on which expected rate of reasonable return is 10%. Calculate the value of goodwill under suitable method taking 2 years purchase.​

Answer 1

Answer:

Step 1: Calculation of Normal Profit:

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

= 80000* [15/100]

= 12000

Step 2: Calculation of Average Profit:

Average Profit= [ 17000+20000+23000]/3

= 20000

Step 3: Calculation of Super Profit:

Super Profit= Average Profit- Normal Profit

= 20000-12000

= 8000

Step 4: Calculation of Goodwill:

Goodwill= 8000* 2

= 16000

Explanation:

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