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Question

# A business earned an average profit of Rs. 8,00,000 during the last few years. The normal rate of profit in the similar type of business is 10. The total value of assets and liabilities of the business were Rs. 22,00,000 and Rs. 5,60,000 respectively. Calculate the value of goodwill of the firm by super profit method if it is valued at 212 years purchase of super profit.

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Solution

## Calculation of goodwill under super profit basis:Net assets or capital employed = Total assets - Total liabilitiesNet assets or capital employed = Rs. (2200000 - 560000) = Rs. 1640000Average profit = Rs. 800000Normal profit = Capital employed * rate of interestNormal profit = Rs. 1640000 * 10% = Rs. 164000Super profit = Average profit - Normal profitSuper profit = Rs. (800000 - 164000) = Rs. 636000Goodwill = Super profit * No. of year's purchaseGoodwill = Rs. 636000 * 2.5 yearsGoodwil = Rs. 1590000

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