Under Super Profit Method, Goodwill is calculated by:
Ans – b) Explanation:- Goodwill = Super Profit * Number of Year’s Purchase
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A firm earns a profit of ₹ 1,10,000. The Normal Rate of Return is 10%. Assets of the firm are ₹ 11,00,000 and liabilities ₹ 1,00,000. The Value of goodwill by Capitalisation of Average Profit will be
Ans – d) Solution:- Capital Employed = Assets – Liabilities Capital Employed = 11,00,000 – 1,00,000 Capital Employed = ₹ 10,00,000 Capitalized Value of Average Profit = Average Profit/Normal Rate of Return Capitalised Value of Average Profit = 1,10,000 *…
The total Capital employed in the firm is ₹ 8,00,000, the Normal Rate of Return is 15% and the profit for the year is ₹ 1,20,000. Value of goodwill as per the Capitalisation Method would be:
Ans – c) Explanation:- Capitalised Value of Average Profit = Average Profit/Normal Rate of Return Capitalised Value of Average Profit = 1,20,000 * 100/15 Capitalised Value of Average Profit = ₹ 8,00,000 Goodwill = Capitalsed Value of Average Profit –…
The Formula for valuing goodwill under the Capitalisation of Super Profit Method is:
Ans – d) Explanation:- The formula of calculating goodwill by Capitalization of super profit method: Goodwill = Supre Profit of the firm/ Normal Rate of Return
The average profit of a business over the last five years was ₹ 60,000. The normal yield on capital invested in such a business is estimated at 10% p.a. Capital invested in the business is ₹ 5,00,000. The amount of goodwill, if it is based on 3 year’s purchase of the last 5 years’ super profits will be:
Ans – c) Explanation:- Normal Profit = Capital Employed * Normal Rate of Return Normal Profit = 5,00,000 * 10% Normal Profit = ₹ 50,000 Super profit = Average Profit – Normal Profit Super Profit = ₹ 60,000 – ₹…
The weighted Average Profit Method of calculating goodwill is useful when
Ans – b) Explanation:- When profits show a trend either rising or falling the weighted average profit method is useful.
Following were the profits of the firm for the last 3 years:
Ans – b) Explanation:-
Raj & Associates is a partnership firm. Ajay is admitted as a partner. Its Goodwill is to be valued by Average Profit Method. The average profit for the past 5 years is ₹ 1,50,000, and Goodwill is being valued at 3 years’ purchase of average profit, the value of Goodwill of the firm will be:
Ans – a) Explanation:- Value of Goodwill = Average profit of the last 5 years * 3 years purchase Value of Goodwill = 1,50,000 * 3 Value of Goodwill = ₹ 4,50,000
Capital Employed by a partnership firm is ₹ 5,00,000. Its average profit is ₹ 60,000. The normal rate of return is similar type of business is 10%. The amount of super profit is
Ans – b) Explanation:- Normal Profit = 5,00,000 * 10% = ₹ 50,000 Super Profit = Average Profit – Normal Profit Super Profit = ₹ 60,000 – ₹ 50,000 Supre Profit = ₹ 10,000
The term ‘Number of Years’ Purchase means:
Ans – a) Explanation:- The ‘number of years purchase’ in the calculation of goodwill are the expected years that the profit due to goodwill is likely to arise in the future. For example, there is 2 years purchase. It means…
