Q.15.The books of Ram and Bharat showed that the capital employed on 31.12.2016 was Rs. 5,00,000 and the profits for the last 5 years : 2015 Rs. 40,000; 2014 Rs. 50,000; 2013 Rs. 55,000; 2012 Rs. 70,000 and 2011 Rs. 85,000. Calculate the value of goodwill on the basis of 3 years purchase of the average super profits of the last 5 years assuming that the normal rate of return is 10%?
SOLUTION
Given,
Capital employed = Rs 5,00,000
Normal rate of return = 10%
Normal Profit = 5,00,000 x 10
100
=Rs 50,000
Average profit of last five years
=40,000 + 50,000 + 55,000 + 70,000 + 85,000
5
= 3,00,000
5
=Rs 60,000
Super profit = Actual profit – Normal profit
=Rs 60,000 – Rs 50,000
=Rs 10,000
Goodwill = Super profit X Number of year’s purchased
= Rs 10,000 X 3
= Rs 30,000
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