Question

Total capital employed in ₹800000, reasonable rate of return is 15% and profit for the year is 150000 the value of goodwill of the firm as per capitalisation method would be:
a.) 100000
b.) 200000
c.) 300000
d.) 400000​

Answer 1

Answer:

Calculation of goodwill under capitalisation basis:

Capital employed = Rs. 800000

Rate of return = 15%

Average profit = Rs. 1500000

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

Normal value of business = Rs. (1500000/15) * 100

Normal value of business = Rs. 10000000

Goodwill = Normal value of business - capital employed

Goodwill = Rs. (8000000 - 800000)

Goodwill = Rs. 100000