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Question
Calculate the value of goodwill according to capitalisation of Super Profits Method in the following:
The average profits of a firm is ₹ 48,000. The total assets of the firm are ₹ 8,00,000. Value of outside liabilities is ₹ 5,00,000. Average rate of return in the same business is 12%.
Numerical
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Solution
Given:
Average Profit = ₹ 48,000
Total Assets = ₹ 8,00,000
Outside Liabilities = ₹ 5,00,000
Normal Rate of Return (NRR) = 12%
Capital Employed = Total Assets − Outside Liabilities
= ₹ 8,00,000 − ₹ 5,00,000
= ₹ 3,00,000
Normal Profit = Capital Employed `xx "NRR"/100`
`= 3,00,000xx12/100`
= ₹ 36,000
Super Profit = Average Profit − Normal Profit
= ₹ 48,000 − ₹ 36,000
= ₹ 12,000
Goodwill = `"Super Profit" xx 100/"Normal Rate of Return"`
= `12,000 xx 100/12`
= ₹ 1,00,000
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