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Question
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%. Calculate goodwill from capitalisation of average profits method.
Numerical
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Solution
Given:
Average Profits = ₹ 48,000
Total Assets = ₹ 8,00,000
Outside Liabilities = ₹ 5,00,000
Normal Rate of Return (NRR) = 12%
Capitalised Value = `"Average Profit" xx 100/"Normal Rate of Return"`
= `(48,000) xx 100/12`
= 4,00,000
Capital Employed = Total Assets − Outside Liabilities
= 8,00,000 − 5,00,000
= 3,00,000
Goodwill = Capitalised Value − Capital Employed
= 4,00,000 − 3,00,000
= 1,00,000
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