Total Capial employed in the firm is Rs8,00,000, reasonable rate of return is `15%` and Profit for the year is Rs 12,00,000. The value of goodwill of the firm as per capitalization method would be:
Answers
Capital employed = RS. 8,00,000
Rate of return = 15%
Average profit = RS. 12,00,000
Normal value of business = (Average profit/ Rate of return) * 100
Normal value of business = RS. (12,00,000/15) * 100
Normal value of business = RS. 80,00,000
Goodwill = Normal value of business - capital employed
Goodwill = RS. (80,00,000 - 8,00,000)
Goodwill = RS. 72,00,000
Explanation:
Solution :
★ Goodwill = Capitalised Value of Profit - Capital Employed
• Capitalised Value of Profit = Average Profit × (100/NRR)
= 12,00,000 × (100/15)
= 80,00,000
Capitalised Value of Profit = Rs. 80,00,000
Capial employed in the firm is Rs. 8,00,000
★ Goodwill = Capitalised Value of Profit - Capital Employed
= 80,00,000 - 8,00,000
= 72,00,000
Goodwill = Rs. 72,00,000
Therefore, the value of goodwill of the firm as per capitalization method would be Rs. 72,00,000.