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Question

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:


  1. Rs 30,00,000

  2. Rs 10,00,000

  3. Rs 20,00,000

  4. Rs 11,00,000


Solution

The correct option is D

Rs 11,00,000


Total capitalised value of the firm = Average Profit X 100 / NRR = 1,00,000 X 100 /5 = 20,00,000

Net asset of the firm = Total Assets – Liabilities

= 15,00,000 – 5,00,000

= 10,00,000

Goodwill = Total capitalised value of business – Net assets

= 20,00,000 – 10,00,000

= Rs. 10,00,000

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