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From the figures given below, calculate goodwill according to the capitalisation of Average Profits Method : (i) Actual Average Profits = Rs. 72,000 (ii) Normal Rate of Return = 10% (iii) Assets = Rs. 9,70,000 (iv) Liabilities = Rs. 4,00,000 |
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Answer» Capitalised Value of Average Profits = Average Profits `xx (100)/("Normal Rate of Return")` `= 72,000 xx (100)/(10) =` Rs. 7,20,000 Capital Employed = Assets - Liabilities (i.e., Net Assets as on the date of Valuation of Goodwill) = Rs. 9,70,000 - Rs. 4,00,000 = Rs. 5,70,000. Goodwill = Capitalised Value of Average Profits - Net Assets = Rs. 7,20,000 - Rs. 5,70,000 = Rs. 1,50,000. |
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