Question

Average profit of the firm is ₹ 3,00,000. Total assets of the firm are ₹ 24,00,000 whereas Partner’s Capital is ₹ 20,00,000. If the normal rate of return in a similar business is 12% of the capital employed, what is the value of goodwill by Capitalisation of Super Profit?

Answer 1

Given:

Average Profit = ₹ 3,00,000

Total Assets = ₹ 24,00,000

Partners’ Capital = ₹ 20,00,000

Normal Rate of Return (NRR) = 12%

Assets = Capital + Outside Liabilities

24,00,000 = 20,00,000 + Outside Liabilities

Outside Liabilities = 24,00,000 − 20,00,000

Outside Liabilities = ₹ 4,00,000

Capital Employed = Total Assets − Outside Liabilities

= 24,00,000 − 4,00,000

= ₹ 20,00,000

Normal Profit = `"Capital Employed" xx "NRR"/100`

= `20,00,000 xx 12/100`

= ₹ 2,40,000

Super Profit = Average Profit − Normal Profit

= 3,00,000 − 2,40,000

= ₹ 60,000

Goodwill = `"Super Profit" xx 100/"NRR"`

= `60,000 xx 100/12`

= ₹ 5,00,000