Question

Capital employed in a business is Rs. 2,00,000. The normal rate of return on capital employed is 15%. During the year 2015 the firm earned a profit of Rs. 48,000. Calculate goodwill on the basis of 3 years purchase of super profit?

Answer 1

Given: Capital Employed = Rs 2,00,000

Actual Profit = 48,000

Normal Rate of Return = 15%

Formula: Normal Profit  = Capital Employed × `"Normal Rate of Return"/100`

= `2,00,000 xx 15/100`

= Rs 30,000

Super profit = Actual Profit − Normal Profit

= 48,000 − 30,000

= Rs 18,000

Goodwill = Super Profit × Number of Years Purchase

= 18,000 × 3

= Rs 54,000