Question

The average capital employed of a firm is ₹ 4,00,000 and the normal rate of return is 15%. The average profit of the firm is ₹ 80,000 per annum. If the remuneration of the partners is estimated to be ₹ 10,000 per annum, then on the basis of two years purchase of super-profit, the value of the goodwill will be ______.

Options

• ₹ 10,000

• ₹ 20,000

• ₹ 60,000

• ₹ 80,000

Answer 1

The average capital employed of a firm is ₹ 4,00,000 and the normal rate of return is 15%. The average profit of the firm is ₹ 80,000 per annum. If the remuneration of the partners is estimated to be ₹ 10,000 per annum, then on the basis of two years purchase of super-profit, the value of the goodwill will be ₹ 20,000.

Explanation:

Given:

Average Capital Employed = ₹ 4,00,000

Normal Rate of Return (NRR) = 15%

Average Profit = ₹ 80,000

Partner’s Remuneration = ₹ 10,000

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

= `4,00,000 xx5/100`

= ₹ 60,000

Adjusted Average Profit = 80,000 − 10,000

= ₹ 70,000

Super Profit = Adjusted Average Profit − Normal Profit

= 70,000 − 60,000

= ₹ 10,000

Goodwill = Super Profit × 2

= 10,000 × 2

= ₹ 20,000