Question

The profits and losses for the last years are 2001-02. Losses 10,000; 2002-03 Losses 2,500; 2003-

04 Profits 98,000 & 2004-05 Profits 76,000. The average capital employed in the business is

2,00,000. The rate of interest expected from capital invested is 12%. The remuneration of partners is

estimated to be 1,000 per month. Calculate the value of goodwill on the basis of two years purchase

of super profits based on the average of four years.​

Answer 1

Answer:

8750

Explanation:

Goodwill arises when a company acquires another entire business. The amount of goodwill is the cost to purchase the business minus the fair market value of the tangible assets, the intangible assets that can be identified, and the liabilities obtained in the purchase.

Average profit = (88000 + 62000 - 20000 - 16500)/ 4

= 113500/4

= 28375

Normal profit =( capital employed * normal rate )/ 100

=( 240000 * 10)/100

= 24000

Super profit = Average profit - normal profit

= 28375 - 24000

= 4375

Goodwill = Super profit * No. of year's purchase

= 4375 * 2

= 8750