Question

Total capital employed in ₹800000, reasonable rate of return is 15% and profit for the year is 1200000 the value of goodwill of the firm as per capitalisation method would be:​

Answer 1

Answer:

Calculation of goodwill under capitalisation basis:

Capital employed = Rs. 800000

Rate of return = 15%

Average profit = Rs. 1200000

Normal value of business = (Average profit/ Rate of return) * 100

Normal value of business = Rs. (1200000/15) * 100

Normal value of business = Rs. 8000000

Goodwill = Normal value of business - capital employed

Goodwill = Rs. (8000000 - 800000)

Goodwill = Rs. 7200000

Answer 2

Concept introduction:

Goodwill is the worth of a company's reputation earned through time in terms of predicted future earnings over and above typical profits. Goodwill is an intangible real asset that cannot be seen or felt but may be purchased and sold in reality.

Given:

Here it is given that Total capital employed $Rs.800000$.

Rate of return is $15$‰.

profit for the year is $1200000$.

To find:

We have to find the value of goodwill of the firm.

Solution:

According to the question,

Normal value of business= $(Average profit/ Rate of return) * 100$

Normal value of business $Rs. (1200000/15) * 100$
Normal value of business $= Rs. 8000000$.

Goodwill = Normal value of business - capital employed.

Goodwill $Rs. (8000000 - 800000)$.

Goodwill $= Rs. 7200000$.

Final answer:

So, the goodwill of the firm is $= Rs. 7200000$.

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