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
Answers
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
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.