A firm earns Rs. 40,000 as its average profits. The normal rate of return is 10%. Total assets of the firm are Rs. 10,00,000 and its total external liabilities are Rs. 5,00,000. Calculate the amount of goodwill:

Rs 50,000

No worries! We‘ve got your back. Try BYJU‘S free classes today!

Rs 2,00,000

No worries! We‘ve got your back. Try BYJU‘S free classes today!

Rs 87,500

No worries! We‘ve got your back. Try BYJU‘S free classes today!

Rs 1,00,000

Right on! Give the BNAT exam to get a 100% scholarship for BYJUS courses

Open in App

Solution

The correct option is D
Rs 1,00,000

Total capitalised value of the firm = Rs. 40,000 / 10% = Rs 4,00,000

Capital Employed = Rs. 1,000,000 − Rs. 500,000 = Rs 5,00,000

Goodwill = Rs. 500,000 − Rs. 400,000 = Rs 1,00,000

Suggest Corrections

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.

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:

A business has earned average profits of Rs. 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 Rs. 10,00,000 and its external liabilities are Rs. 1,80,000. The normal rate of return is 10%?

Q. Average profit of a firm is