The profit for the last three years are Rs. 40,000; 2003 – 2004 Profits Rs. 60,000 & 2004- 2005 Profits Rs. 66,500. The total liabilities of the firm are Rs. 10,00,000 of which outsiders liabilities is Rs. 5,42,500.The rate of interest expected from capital invested is 10%. The value of goodwill on capitalisation basis is: *
Rs. 97,500
Rs. 97,000
Rs. 97,750
Rs. 97,250
Answers
Answer: C
97500
Explanation:
Average profit = 166500/3
= 55500
Normal profit = Capital employed × NRR/100
= 457500
Super profit = Avg profit - Normal profit
= 555000-457500
= 97500
The value of goodwill on capitalisation basis is Rs. 97000.
Given,
Profit for 2002 - 2003 = Rs. 40,000
Profit for 2003 - 2004 = Rs. 60,000
Profit for 2004 - 2005 = Rs. 66500
Total liabilities = Rs. 10,00,000 and Outsider Liabilities = 5,42,500
Rate of interest from capital investment = 10%
To Find,
The value of goodwill on capitalisation.
Solution,
Step 1 : Weighted Average Profit
In the question weights are 1, 2, 3 and amount (Profit * Weight) corresponding to them are Rs. 40,000, Rs. 1,20,000 and Rs. 1,99,500.
Hence, total weights are 6 and total amount is Rs. 3,59,500
Weighted Average Profit = 3,59,500/6 = Rs. 59,916
Step 2 : Total Value of Firm
Total Value of Firm = (Average Profit/Rate of Interest) * 100)
= (55,500/10) * 100 = Rs. 5,55,000
Step 3 : Capital Employed
Capital Employed = Total Liabilities - Outside Liabilities
10,00,000 - 5,42,500 = Rs. 4,58,000
Step 4 : Goodwill
Goodwill = Total value of firm - Capital employed
= 5,55,000 - 4,58,000 = Rs. 97000
Therefore, the value of goodwill on capitalisation basis is Rs. 97000.
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