A business has earned average profits of Rs. 1,00,000 during the last

1.	A business has earned average profits of Rs. 1,00,000 during the last few years and the normal rate of return in a similar business is 10%. Ascertain the value of goodwill by capitalisation of super profits method, given that the value of net assets of the business is Rs.8,20,000.
Answer» Goodwill = super profit × 100/ Normal rate of return Super profit = Actual/Average profit – Normal profit Normal profit = Capital employed × Normal rate of return = 820000 × 10/100 = 82000 Super profit = 100000 – 82000 = 18000 Goodwill = 18000 × 100/10 = Rs. 180000.

A business has earned average profits of Rs. 1,00,000 during the last few years and the normal rate of return in a similar business is 10%. Ascertain the value of goodwill by capitalisation of super profits method, given that the value of net assets of the business is Rs.8,20,000.

Answer»

Goodwill = super profit × 100/ Normal rate of return

Super profit = Actual/Average profit – Normal profit

Normal profit = Capital employed × Normal rate of return = 820000 × 10/100 = 82000

Super profit = 100000 – 82000 = 18000

Goodwill = 18000 × 100/10 = Rs. 180000.