Question

Capital employed by a partnership firm is $Rs.1,00,000$. Its average profit is $Rs.20,000$. Normal rate of return is $15\%$. Value of goodwill is _________.

• A. $Rs.33,333$
• B. $Rs.30,000$
• C. $Rs.23,333$
• D. $Rs.43,667$

Answer 1

The correct option is A $Rs.33,333$

Calculation of goodwill under capitalization basis:

Capital employed = Rs. 100000

Normal rate of return = 15%

Average profit = Rs. 20000

Normal value of business = Average profit/ Normal rate of return

Normal value of business = Rs. 20000/ 15%

Normal value of business = Rs. 133333

Goodwill = Normal value of business - Capital employed

Goodwill = Rs. (133333 - 100000) = Rs. 33333