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A firm earned ₹ 60,000 as profit, the normal rate of return being 10%. Assets of the firm are ₹ 7,20,000 (excluding goodwill) and Liabilities are ₹ 2,40,000. Find the value of Goodwill by Capitalisation of the Average Profit Method.

Ans – c) Solution:- Capital Employed = Assets (excluding goodwill) – Liabilities Capital Employed = ₹ 7,20,000 – 2,40,000 Capital Employed = ₹ 4,80,000 Capitalised Value of Average Profit = Average Profit/Normal Rate of Return Capitalised Value of Average Profit…

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 – ₹…