Experts can you tell me the answer of this question
The average profit earned by a firm is ₹ 95,000 which includes undervaluation of stock of ₹ 10,000 on an average basis. The capital invested in the business is ₹ 9,00,000 and the normal rate of return is 9%. Calculate goodwill of the firm on the basis of 8 times the super profit.
(3 marks).
Dear Student,
Correct Average Profit = Average Profit + Undervaluation of Stock
Correct Average Profit = Average Profit + Undervaluation of Stock
= 95000 + 10000
= 105000
Normal Profit = Capital Invested × Rate /100
= 105000
Normal Profit = Capital Invested × Rate /100
= 900000 × 9/100
= 81000
Super Profit = Average Profit - Normal Profit
= 105000 - 81000
= 24000
Goodwill = Super Profit × 8
= 24000 × 8
= Rs 192000
Regards
Super Profit = Average Profit - Normal Profit
= 105000 - 81000
= 24000
Goodwill = Super Profit × 8
= 24000 × 8
= Rs 192000
Regards