Question

Average profit of firm is Rs 3,00,000. Total tangible assets in the firm are Rs 28,00,000 and outside liabilities are Rs 8,00,000. In same type of business, normal rate of return is 10% of capital employed. Calculate goodwill by Capitalisation of Super Profit Method.

• A. 14,00,000
• B. 16,00,000
• C. 18,00,000
• D. 10,00,000

Hint:

Goodwill by Capitalisation of Super Profit = Super Profit × (100 / Normal Rate of Return). Super Profit = Average Profit - Normal Profit.

Answer 1

The Correct Option is D

Capital Employed = Total Assets - Outside Liabilities = Rs 28,00,000 - Rs 8,00,000 = Rs 20,00,000.
Normal Profit = Capital Employed × Normal Rate of Return = Rs 20,00,000 × 10% = Rs 2,00,000.
Super Profit = Average Profit - Normal Profit = Rs 3,00,000 - Rs 2,00,000 = Rs 1,00,000.
Goodwill = Super Profit × (100 / Normal Rate of Return) = Rs 1,00,000 × (100/10) = Rs 10,00,000.