Average Profit Earned By a Firm is ₹ 7,50,000 Which Includes Overvaluation Of Stock of ₹ 30,000 On An Average Basis - Bzziii.com

Average profit earned by a firm is ₹ 7,50,000 which includes overvaluation of stock of ₹ 30,000 on an average basis. The capital invested in the business is ₹ 42,00,000 and the normal tare of return is 15%. Calculate goodwill of the firm on the basis of 3 time the super profit.

Average profit earned by a firm = Rs.7,50,000

Overvaluation of stock = Rs.30,000

Average actual profit = Average profit earned by a firm- overvaluation of stock

= Rs. (75,000 - 30,000)

= Rs. 7,20,000.

Normal Profit = Capital Investment `\times` `"Normal Rate of Return"/100`

= Rs. 42,00,000 x `frac{15}{100}`

= Rs. 6,30,000.

Super Profit = Actual Average Profit - Normal Profit

= Rs. (7,20,000 - 6,30,000)

= Rs. 90,000.

Goodwill = Super Profit `\times` Number of Times

= Rs. (90,000 `\times` 3)

= Rs. 2,70,000. 

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

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