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
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.
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.
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