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A Business Has Earned Average Profit of ₹ 1,00,000 During the Last Few Years, Find Out the Value of Goodwill By Capitalisation Method

A business has earned average profit of ₹ 1,00,000 during the last few years. Find out the value of goodwill by capitalisation method, given that the
A business has earned average profit of ₹ 1,00,000 during the last few years. Find out the value of goodwill by capitalisation method, given that the assets of the business are ₹ 10,00,000 and its external liabilities are ₹ 1,80,000. The normal rate of return is 10%.




Capitalised Value of Average Profit

= Average Profit x `"Nominal Rate of Return"/"100"`

= RS, 1,00,000 x `frac{10}{100}`

= Rs. 10,00,000.

Capital Employed = Average Profit - external liabilitie

= Rs. (10,00,000 - 1,80,000)

= Rs. 8,20,000.

Goodwill = Capitalised Value of Average Profits - Actual Capital Employed

= Rs, (10,00,000 - 8,20,000)

= Rs. 1,80,000.

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