Ideal Marketing earned an average profit of ₹ 4,00,000 during the last five years. Normal rate of return on capital employed is 10%. Balance Sheet of the firm as at 31st March, 2019 was as follows:
| Liabilities | Amount (₹) | Assets | Amount (₹) | |
| Capital A/cs: | Land and Building | 10,00,000 | ||
| Shyam | 5,00,000 | Furniture | 2,00,000 | |
| Sunder | 5,00,000 | 10,00,000 | Investments | 1,00,000 |
| Current A/cs: | Sundry Debtors | 5,00,000 | ||
| Shyam | 2,00,000 | Bills Receivable | 50,000 | |
| Sunder | 2,00,000 | 4,00,000 | Closing Stock | 3,00,000 |
| Reserves | 3,40,000 | Cash in Hand | 50,000 | |
| Sundry Creditors | 4,00,000 | Cash at Bank | 1,00,000 | |
| Bills Payable | 1,00,000 | |||
| Outstanding Expenses | 60,000 | |||
| 23,00,000 | 23,00,000 |
Calculate the value of goodwill, if it is valued at three years’ purchase of Super Profit.
Average Profits = 4,00,000
Capital Employed=Total Assets - Non-Trade Investments- Outside Liabilities
= (23,00,000-1,00,000-5,60,000)
= 16,40,000
Calculation for Normal Profit :
Normal Profits =
= `"Capital Employed x Normal Rate of Return"/"100"`
=16,40,000 x `frac{10}{100}`
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