# Calculate the Value Goodwill. - Accountancy

Sum

Gupta and Bose had a firm in which they had invested ₹ 50,000. On an average, the profits were ₹ 16,000. The normal rate of return in the industry is 15%. Goodwill is to be valued at four years' purchase of profits in excess of profits @ 15% on the money invested. Calculate the  value goodwill.

#### Solution

Goodwill = Super Profit x Number of Years Purchase

Normal Profit = Capital Employed x "Normal Rate Return"/100

= 50,000 x 15/100 = Rs. 7,500.

Actual Profit = Rs. 16,000

Super Profit = Actual Profit - Normal Profit

= 16,000 - 7,500 = Rs. 8,500.

Number of years’ purchase = 4
∴ Goodwill = 8,500 x 4 = Rs. 34,000.

Is there an error in this question or solution?

#### APPEARS IN

TS Grewal Class 12 Accountancy - Double Entry Book Keeping Volume 1
Chapter 3 Goodwill: Nature and Valuation
Exercise | Q 22 | Page 32