From the following details, calculate the value of goodwill at 2 years

1.	From the following details, calculate the value of goodwill at 2 years purchase of super profit:1. Total assets of a firm are Rs. 5,00,000 2. The liabilities of the firm are Rs. 2,00,000 3. Normal rate of return in this class of business is 12.5 %. 4. Average profit of the firm is Rs. 60,000.
Answer» Capital employed = fixed assets + current assets – current liabilities = 5, 00, 000 – 2, 00, 000 = 3, 00, 000 Normal profit = Capital employed x Normal rate of return = 3,00,000 x 12.8/100 = 3, 75, 000 Super profit = Average profit – Normal profit = 60, 000 – 37, 500 = 22, 500 Goodwill = Super profit x Number of years of purchase = Rs. 22,500 x 2 = Rs. 45,000

From the following details, calculate the value of goodwill at 2 years purchase of super profit:1. Total assets of a firm are Rs. 5,00,000 2. The liabilities of the firm are Rs. 2,00,000 3. Normal rate of return in this class of business is 12.5 %. 4. Average profit of the firm is Rs. 60,000.

Answer»

Capital employed = fixed assets + current assets – current liabilities

= 5, 00, 000 – 2, 00, 000

= 3, 00, 000

Normal profit = Capital employed x Normal rate of return

= 3,00,000 x 12.8/100

= 3, 75, 000

Super profit = Average profit – Normal profit

= 60, 000 – 37, 500

= 22, 500

Goodwill = Super profit x Number of years of purchase

= Rs. 22,500 x 2

= Rs. 45,000