Experts can you pls tell me the answer of this
A business has earned average profits of ₹ 1,00,000 during the last few years and the normal rate of return in similar business is 10%. Find out the value of goodwill by:
a. Capitalization of super profit method.
b. Super profit method if the goodwill is valued at 3 years’ purchase of super profit.
The assets of the business were ₹ 10,00,000 and its external liabilities ₹ 1,80,000.
Dear Student,
Capital Invested = Assets - External Liabilities
= 1000000 - 180000
= 820000
Normal Profit = Capital invested × Rate / 100
Capital Invested = Assets - External Liabilities
= 1000000 - 180000
= 820000
Normal Profit = Capital invested × Rate / 100
= 820000 × 10/100
= 82000
Super Profit = Average Profit - Normal Profit
= 100000 - 82000
= 18000
a) Goodwill = Super Profit × 100/ Rate
Super Profit = Average Profit - Normal Profit
= 100000 - 82000
= 18000
a) Goodwill = Super Profit × 100/ Rate
= 18000 × 100/10
= Rs 180000
b) Goodwill = Super Profit × 3
= 18000 × 3
= Rs 54000
Regards
= Rs 180000
b) Goodwill = Super Profit × 3
= 18000 × 3
= Rs 54000
Regards