Average profit of a firm is $R s .1, 20, 000$ . The rate of capitalization is $12$ . Assets and liabilities of the firm are $R s .10, 00, 000$ & $R s .4, 25, 000$ respectively. The value of goodwill of the firm is _____________.

R s .3, 25, 000

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

R s .2, 25, 000

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

R s .5, 25, 000

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

R s .4, 25, 000

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

Open in App

Solution

The correct option is D $R s .4, 25, 000$
Calculation of goodwill under capitalization basis-
Capital employed = Assets - Liabilities
Capital emplyed = Rs. (1000000 - 425000)
Capital emplyed = Rs 575000
Normal value of business = Average profit/capitalization rate
Normal value of business = Rs. 120000/ 12%
Normal value of business = Rs. 1000000
Goodwill = Normal value of business - capital employed
Goodwill = Rs. 1000000 - Rs. 575000
Goodwill = Rs. 425000

Suggest Corrections

Similar questions

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:

Q. K and A are partners in a firm. They share profits and losses in the ratio of

4 : 1

. They decide to dissolve the firm K Capital - Rs

1, 60, 000

, A Capital - Rs

1, 00, 000

, Total assets - Rs

3, 95, 000

, Total liabilities - Rs

1, 35, 000

. On dissolution assets realized Rs

4, 25, 000

& liabilities settled at Rs

1, 10, 000

. Net profit or loss on realization = ?

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. Average profit of the firm is Rs.