Average Net Profit Expected In Future By XYZ firm is ₹ 36,000 Per Year
Average net profit expected in future by XYZ firm is ₹ 36,000 per year. Average capital employed in the business by the firm is ₹ 2,00,000. The normal
Average net profit expected in future by XYZ firm is ₹ 36,000 per year. Average capital employed in the business by the firm is ₹ 2,00,000. The normal rate of return from capital invested in this class of business is 10%. Remuneration of the partners is estimated to be ₹ 6,000 p.a. Calculate the value of goodwill on the basis of two years' purchase of super profit.
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Calculation for Normal Profit
= Capital Employed x Normal Rate of Return\100
= Rs. 2,00,000 x `frac\{10}{100}`
= Rs. 20,000
Expected Profit = Rs. 36,000 - Rs. 6,000
= Rs. 30,000.
Calculation for Super Profit = Real Profit - Normal Profit
= Rs. 30,000 - Rs. 20,000
= Rs. 10,000.
Goodwill = Super Profit x No. of years purchase
= Rs. (10,000 x 2) = Rs. 20,000.
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