Average Profit ₹ 4,40,000, Capital Employed ₹ 8,00,000; Normal Rate of Return 15%. Management Cost during this period is estimated to be ₹ 2,00,000. Calculate the value of goodwill on the basis of two years’ purchase of super profit.
Average Profit ₹ 4,40,000, Capital Employed ₹ 8,00,000; Normal Rate of Return 15%. Management Cost during this period is estimated to be ₹ 2,00,000.
Calculate the value of goodwill on the basis of two years’ purchase of super profit.
Anurag Pathak Changed status to publish April 19, 2023
Solution:-
Average Profit for Valuation of Goodwil = ₹ 4,40,000 – ₹ 2,00,000 (Partner’s Remuneration)
Average Profit for Valuation of Goodwill = ₹ 2,40,000
Normal Profit = Capital Employed × Normal Rate of Return
Normal Profit = 8,00,000 × 15/100 = ₹ 1,20,000
Super Profit = Average Profit – Normal Profit
Super Profit = 2,40,000 – 1,20,000 = ₹ 1,20,000
Goodwill = Super Profit × No. of years of purchase
Goodwill = 1,20,000 × 2 = ₹ 2,40,000
Anurag Pathak Changed status to publish April 19, 2023
