Question

The total capital of the firm of Sakshi, Mehak and Megha is Rs. $1,00,000$ and the market rate of interest is $15$. The net profits for the last $3$ years were Rs. $30,000,Rs.36,000$ and $Rs.42,000$. Goodwill is to be be valued at $2$ years purchase of the last $3$ years super. Calculate the goodwill of the firm.

Answer 1

Step 1: Calculation of normal profit:

Normal profit = Capital employed * [Normal rate of return/100]

= 100000 * [ 15/100]

= 15000

Step 2: Calculation of Average Profit:

Average Profit = [ 30000+36000+42000]/3

= 108000/3

= 36000

Step 3: Calculation of Super Profit:

Super Profit= 36000-15000

= 21000

Step 3: Calculation of Goodwill:

Goodwill= 21000* 2

= 42000