Question

A firm earns a profit of ₹ 37,000 per year. In the same business a 10% return is generally expected. The total assets of the firm are 4,00,000. The value of outside liabilities is ₹ 90,000. Find out the value of goodwill.

Answer 1

Given:

Average Profit (actual profit) = ₹ 37,000

Normal Rate of Return (NRR) = 10%

Total Assets = ₹ 4,00,000

Outside Liabilities = ₹ 90,000

Capital Employed = Total Assets − Outside Liabilities

= 4,00,000 − 90,000

= ₹ 3,10,000

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

= `3,10,000 xx 10/100`

= ₹ 31,000

Super Profit = Actual Profit − Normal Profit

= 37,000 − 31,000

= ₹ 6,000

Goodwill = `"Super Profit" xx 100/"Normal Rate of Return"`

= `6,000 xx 100/10`

= ₹ 60,000