Question

Total capital employed in the firm is Rs. 800000, reasonable rate of return is 15% and profit for the year is Rs. 1200000. The value of Goodwill of the firm as per capitalisation method will 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

Step-by-step explanation:

Calculation of goodwill by capitalisation method,

Capital employed in the firm = ₹8,00,000

Rate of return = 15%

Average profit = ₹12,00,000

Capital value of business =

(Average profit/ Rate of return) × 100

= (12,00,000 × 100 / 15)

= 80,000 × 100

= ₹ 80,00,000

Goodwill = Capital value of business - Capital employed

Goodwill = (80,00,000 - 8,00,000)₹

Goodwill = ₹ 72,00,000

Hope it helps.