The average net profit expected in future by $X Y Z$ firm is Rs. $36, 000$ per year. Average capital employed in the business by the firm is Rs. $2, 00, 000$ . The normal rate of return from capital invested in his class of business is $10$ . Remuneration of the partners is estimated to be Rs. $6, 000$ p.s. Find out the value of goodwill on the basis of two years purchase of super profit.

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Solution

Step 1: Calculation of Normal Profit:
Normal Profit= Capital employed * [ Normal rate of return/100]
= 200000* [10/100]
= 20000

Step 2: Calculation of Actual Profit:
Actual Profit= 36000-6000
= 30000

Step 3: Calculation of Super Profit:
Super Profit= Actual profit- Normal Profit
= 30000- 20000
=10000

Step 4: Calculation of Goodwill:
Goodwill= 10000* 2
= 20000

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