a firm earns10000annual profit ,thr rate of return is 10%.the asset are of 80000 .value of goodwill is 45000.find the outsider liability.show your working clearly

Hi Priya

The solution to your query is provided below:

In this case, we will use the method 'Capitalisation of Average Profit' in order to ascertain the outsider's liability

$$\begin{gathered} \mathrm{Average} \mathrm{Profit} = 10,000 \\ \mathrm{Capitalised} \mathrm{Value} \mathrm{of} \mathrm{Avg}. \mathrm{Profit} = \mathrm{Average} \mathrm{Profit} \times \frac{100}{\mathrm{Rate} \mathrm{of} \mathrm{Return}}=10,000\times \frac{100}{10}= 1,00,000 \\ \mathrm{Goodwill} = \mathrm{Capitalised} \mathrm{value} \mathrm{of} \mathrm{Avg}. \mathrm{Profit} - \mathrm{Actual} \mathrm{Capital} \mathrm{Employed} \\ 45,000 = 1,00,000 - \mathrm{Actual} \mathrm{Capital} \mathrm{Employed} \\ \mathrm{Actual} \mathrm{Capital} \mathrm{Employed} = 55,000 \\ \mathrm{Actual} \mathrm{Capital} \mathrm{Employed} = \mathrm{Total} \mathrm{Assets} - \mathrm{External} \mathrm{Liabilities} \\ 55,000 = 80,000 - \mathrm{External} \mathrm{Liabilities} \\ \mathrm{External} \mathrm{Liabilities} = 25,000 \end{gathered}$$