A firm earns a profit of ₹ 2,50,000. The Normal Rate of Return in a similar type of business is 10%.
A firm earns a profit of ₹ 2,50,000. The Normal Rate of Return in a similar type of business is 10%. The value of a total asset (excluding goodwill) and total outsider’s liabilities as on the date of valuation of goodwill are ₹ 27,50,000 and ₹ 7,00,000 respectively.
Calculate the value of goodwill by adopting the Capitalisation of the Super Profit Method.
Anurag Pathak Changed status to publish April 19, 2023
Solution:-
Capital Employed = Total Assets (Excluding goodwill) – Total Outside’s liabilities
Capital Employed = ₹ 27,50,000 – ₹ 7,00,000 = ₹ 20,50,000
Normal Profit = Capital Employed × Normal Rate of Return
Normal Profit = 20,50,000 × 10%
Normal Profit = ₹ 205000
Super Profit = Average Profit – Normal Profit
Super Profit = 2,50,000 – 2,05,000
Super Profit = ₹ 45,000
Goodwill = Super Profit/Normal Rate of Return
Goodwill = 45,000 × 100/10 = ₹ 4,50,000
Anurag Pathak Changed status to publish April 19, 2023
