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The average profit earned by the firm is Rs. 80,000 which includes under valuation of stock an average basis the capital invested in the business and normal rate of return is 8%. Calculate the goodwill of the firm on the basis of times the super profit. |
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Answer» Average profit – Rs. 80,000 (A) Undervalue of stock – Rs. 8,000 Actual Average profit – Rs. 88,000 Normal profit = Capital investment x Normal rate of return = Rs. 88,000 – Rs. 64,000 = Rs. 24,000 Goodwill = Super profit x 7 = Rs. 24,000 x 7 = Rs. 1,68,000 |
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