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.
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.
a) ₹ 2,40,000
b) ₹ 1,80,000
c) ₹ 1,20,000
d) ₹ 60,000
Anurag Pathak Changed status to publish April 17, 2023
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 = ₹ 60,000 × 100/10
Capitalised Value of Average Profit = ₹ 6,00,000
Goodwill = Capitalised Value of Average Profit – Capital Employed
Goodwill = ₹ 6,00,000 – ₹ 4,80,000
Goodwill = ₹ 1,20,000
Anurag Pathak Changed status to publish April 17, 2023
