Form the Following Particulars, Calculate Value of Goodwill of a Firm By Applying Capitalisation of Average Profit Method - Bzziii.com
Form the following particulars, calculate value of goodwill of a firm by applying Capitalisation of Average Profit Method:
(i) Profits of last five consecutive years ending 31st March are: 2019 − ₹ 54,000; 2018 − ₹ 42,000; 2017 − ₹ 39,000; 2016 − ₹ 67,000 and 2015 − ₹ 59,000.
(ii) Capitalisation rate 20%.
(iii) Net assets of the firm ₹ 2,00,000.
Goodwill = Capitalised value of Average Profit - Capital Employed
Average Profit = `"total profits of the years"/"number of years of profit"`
= Average Profit = Rs. `"54,000 + 42,000 + 39,000 + 67,000 + 59,000"/5`
= Rs. `"2,61,000"/5`
= Rs. 52,200.
Capitalised Value of Average Profit = Average Profit `\times` `"100"/"Normal Rate of Return"`
= Rs. 52,000 `\times` `"100"/20`
= Rs. 2,61,000.
Goodwill = Rs. (2,61,000 - 2,00,000)
= Rs. 61,000.
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