From the following information, calculate the value of goodwill under

1.	From the following information, calculate the value of goodwill under annuity method: 1. Average profit – Rs. 14,000 2. Normal profit – Rs. 4,000 3. Normal rate of return – 15% 4. Years of purchase of goodwill – 5Present value of Rs. 1 for 5 years at 15% per annum as per the annuity table is 3.352
Answer» Super profit = Average profit – Normal profit = 14, 000 – Rs. 4, 000 = Rs. 10, 000 Goodwill = Super profit x Present value of annuity factor = Rs. 10,000 x 3.352 = Rs. 33, 520

From the following information, calculate the value of goodwill under annuity method: 1. Average profit – Rs. 14,000 2. Normal profit – Rs. 4,000 3. Normal rate of return – 15% 4. Years of purchase of goodwill – 5Present value of Rs. 1 for 5 years at 15% per annum as per the annuity table is 3.352

Answer»

Super profit = Average profit – Normal profit

= 14, 000 – Rs. 4, 000 = Rs. 10, 000

Goodwill = Super profit x Present value of annuity factor

= Rs. 10,000 x 3.352

= Rs. 33, 520