Gupta and Bose had a firm in which they had invested ₹ 50,000. On an average :- Accountancy

Gupta and Bose had a firm in which they had invested ₹ 50,000. On an average, the profits were ₹ 16,000. The normal rate of return in the industry is 15%. Goodwill is to be valued at four years' purchase of profits in excess of profits @ 15% on the money invested. Calculate the value goodwill.

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

= 50,000 x `"15"/100`

= Rs. 7,500

Real Profit = Rs. 16,000

Super Profit = Real Profit - Normal Profit

= Rs. (16,000 - 7,500)

= Rs. 8,500

Goodwill = Average Profits of last years x No. of years Purchase

Goodwill = Rs. 8,500 x 4

= Rs. 34,000. 

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

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