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Standard XII

Accountancy

Weighted Average Profits Method

Average profi...

Question

Average profit of the firm is Rs. $2, 00, 000$ . Total assets of the firm are Rs. $15, 00, 000$ whereas Partner's Capital is Rs. $12, 00, 000$ . If normal rate of return in a similar business is $10$ of the capital employed, what is the value of goodwill by Capitalisation of Super Profit?

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Solution

Step 1: Calculation of Capital Employed:
Capital employed= 1200000

Step 2: Calculation of Normal Profit:
Normal Profit= 1200000 * [10/100]
= 120000

Step 3: Calculation of Average Profit:
Average Profit= 200000

Step 4: Calculation of Super Profit:
Super Profit= 200000- 120000
= 80000

Step 5: Calculation of Goodwill:
Goodwill= Super profit* [100/Normal Rate of return]
= 80000 * [100/10]
= 800000

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Average profit of the firm is Rs.2,00,000. Total assets of the firm are Rs.15,00,000 whereas Partner's Capital is Rs.12,00,000. If normal rate of return in a similar business is 10 of the capital employed, what is the value of goodwill by Capitalisation of Super Profit?

Average profit of the firm is Rs. $2, 00, 000$ . Total assets of the firm are Rs. $15, 00, 000$ whereas Partner's Capital is Rs. $12, 00, 000$ . If normal rate of return in a similar business is $10$ of the capital employed, what is the value of goodwill by Capitalisation of Super Profit?