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 * 100/10

Capitalised Value of Average Profit = 11,00,000

Goodwill = Capitalised Value of Average Profit – Capital Employed

Goodwill = 11,00,000 – 10,00,000

Goodwill = ₹ 1,00,000