A firm earns profit of ₹ 5,00,000. Normal Rate of Return in a similar type of business is 10%. The value of total assets (excluding goodwill) and total outsiders' liabilities as on the date of goodwill are ₹ 55,00,000 and ₹ 14,00,000 respectively. Calculate value of goodwill according to Capitalisation of Super Profit Method as well as Capitalisation of Average Profit Method.

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Solution

(i) Calculation of Goodwill by Capitalisation of Super Profit Method

Profit of the firm = Rs 5,00,000

(ii) Calculation of Goodwill by Capitalisation of Average Profit Method

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Similar questions

Q. A firm earns profit of Rs

5, 00, 000

. Normal rate of Return in a similar type of business is

10

. The value of total assets (excluding goodwill) and total outsider liabilities as on the date of goodwill are Rs.

55, 00, 000

and Rs.

14, 00, 000

respectively. Calculate value of goodwill according to Capitalisation of Super Profit Method as well as Capitalisation of Average Profit Method.

Q. A business has earned average profit of ₹ 4,00,000 during the last few years and the normal rate of return in similar business is 10%. Find value of goodwill by:
(i) Capitalisation of Super Profit Method, and
(ii) Super Profit Method if the goodwill is valued at 3 years' purchase of super profits.
Assets of the business were ₹ 40,00,000 and its external liabilities ₹ 7,20,000.

A firm earns Rs. 1,00,000 as its annual profit, the normal rate of profit being 5 %. Assets of the firm are Rs. 15,00,000 excluding goodwill and liabilities are Rs. 5,00,000 .The value of goodwill by capitalisation method will be:

Q. A business has earned average profit of ₹ 1,00,000 during the last few years. Find out the value of goodwill by capitalisation method, given that the assets of the business are ₹ 10,00,000 and its external liabilities are ₹ 1,80,000. The normal rate of return is 10%.

Q. From the following information, calculate value of goodwill of the firm:
(i) At three years' purchase of Average Profit.
(ii) At three years' purchase of Super Profit.
(iii) On the basis of Capitalisation of Super Profit.
(iv) On the basis of Capitalisation of Average profit.
Information:
(a) Average Capital Employed is ₹ 6,00,000.
(b) Net Profit/(Loss) of the firm for the last three years ended are:
31st March, 2018 − ₹ 2,00,000, 31st March, 2017 − ₹ 1,80,000, and 31st March, 2016 − ₹ 1,60,000.
(c) Normal Rate of Return in similar business is 10%.
(d) Remuneration of ₹ 1,00,000 to partners is to be taken as charge against profit.
(e) Assets of the firm (excluding goodwill, fictitious assets and non-trade investments) is ₹ 7,00,000 whereas Partners' Capital is ₹ 6,00,000 and Outside Liabilities ₹ 1,00,000.

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(i) Calculation of Goodwill by Capitalisation of Super Profit Method Profit of the firm = Rs 5,00,000 (ii) Calculation of Goodwill by Capitalisation of Average Profit Method

(i) Calculation of Goodwill by Capitalisation of Super Profit Method

Profit of the firm = Rs 5,00,000

(ii) Calculation of Goodwill by Capitalisation of Average Profit Method