A Business Earned An Average Profit of ₹ 8,00,000 During the Last Few Years :- Goodwill - Bzziii.com

A business earned an average profit of ₹ 8,00,000 during the last few years. The normal rate of profit in the similar type of business is 10%. The total value of assets and liabilities of the business were ₹ 22,00,000 and ₹ 5,60,000 respectively. Calculate the value of goodwill of the firm by super profit method if it is valued at 2`\frac{1}{2}` years' purchase of super profits.

Average profit = Rs.8,00,000

Capital Employed = Total assets - Outside Liabilities

= Rs. (22,00,000 - 5,60,000)

= Rs. 16,40,000


Normal Profit = Capital Employed x `"Normal Rate"/100`

= Rs.16,40,000 x `frac{10}{100}`

= Rs. 1,64,000


Super Profit = Average Profit - Normal Profit

= Rs. (8,00,000 - 1,64,000)

= Rs. 6,36,000


Goodwill = Super Profit x No. of Year's Purchase

= Rs. (6,36,000 x 2.5)

= Rs. 15,90,000

Chapter-3 Goodwill: Nature and Valuation-TS.Grewal

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