A firm has an average profit of Rs. 50,000 during the last certain yea

1.	A firm has an average profit of Rs. 50,000 during the last certain years. The normal rate of return is 10%. The firm has net tangible assets of Rs. 3,00,000. Calculate the value of goodwill using capitalization method.
Answer» Average profit = Rs. 50,000 Normal rate of return = 10% Capitalised value of average profit = \(\frac{50,000 \times 100} {10}\) = Rs. 5,00,000 Goodwill = Capitalised value of average profit - Total of net tangible assets. = Rs. 5,00,000 – 3,00,000 = Rs. 2,00,000.

A firm has an average profit of Rs. 50,000 during the last certain years. The normal rate of return is 10%. The firm has net tangible assets of Rs. 3,00,000. Calculate the value of goodwill using capitalization method.

Answer»

Average profit = Rs. 50,000 Normal rate of return = 10%

Capitalised value of average profit = \(\frac{50,000 \times 100} {10}\) = Rs. 5,00,000

Goodwill = Capitalised value of average profit - Total of net tangible assets.

= Rs. 5,00,000 – 3,00,000 = Rs. 2,00,000.