Question

The profits and losses for the last years are {2007-08} Losses 10000;{ 2008-09}
Losses 2500; {2009-10} Profits 98000 & {2010-11} Profits 76000. The average
capital employed in the business is 200000. The rate of interest expected
from capital invested is 12%. The remuneration of partners is estimated to be
1000 per month. Calculate the value of goodwill on the basis of four years
purchase of super profits based on the annuity method. Take discounting rate
as 10%​

Answer 1

Answer:

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.

Year

Profit before partner’s

remuneration

Partner’s remuneration

Per annum

Profit after partner’s

remuneration

2001-02

(8000)

12000

20000

2002-03

(4500)

12000

16500

2003-04

100000

12000

88000

2004-05

74000

12000

62000

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

Explanation:

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