A firm earns profit of ₹ 5,00,000. Normal Rate of Return in a similar type of business is 10%. The value of total assets (excluding goodwill) and total outsiders liabilities as on the date of goodwill are ₹ 55,00,000 and ₹ 14,00,000 respectively. Calculate value of goodwill according to Capitalisation of Super Profit Method as well as Capitalisation of Average Profit Method.

A firm earns profit of ₹ 5,00,000. Normal Rate of Return in a simila

1.	A firm earns profit of ₹ 5,00,000. Normal Rate of Return in a similar type of business is 10%. The value of total assets (excluding goodwill) and total outsiders liabilities as on the date of goodwill are ₹ 55,00,000 and ₹ 14,00,000 respectively. Calculate value of goodwill according to Capitalisation of Super Profit Method as well as Capitalisation of Average Profit Method.
Answer» n:(i) Calculation of goodwill by capitalisation of super profit method Goodwill = Super Profit x Goodwill = 90,000 x = 9,00 ,000 CAPITAL EMPLOYED = Assets - External Liabilities = 55, 00, 000 - 14, 00, 000 = 41, 00, 000 Normal Profit = Capital Employed x Normal Rate of Return = 41,00, 000 x =4, 10,000 Profit of the firm= 5, 00, 000 Super Profit = Actual profit - Normal Profit = 5100, 000 - 4,10, 000 = 90, 000 (ii) Calculation of Goodwill by capitalisation of average profits method Goodwill = Capitalised Value of Profit - Actual Capital Employed Goodwill = 5,00,000* -41, 00, 000 = 9, 00, 000 Capitalised Value of Profit = Actual Profit x = 5, 00, 000 x = 50, 00, 000 Capital Employed** = Assets - External Liabilities = 55, 00,000 - 14, 00, 000 = 41, 00, 000

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