Rakesh and Ashok Earned a Profit of ₹ 5,000. They Employed Capital of ​₹ 25,000 in the Firm

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Rakesh and Ashok earned a profit of ₹ 5,000. They employed capital of ​₹ 25,000 in the firm. It is expected that the normal rate of return is 15% of the capital. Calculate amount of goodwill if goodwill is valued at three years' purchase of super profit.




Calculation for Normal Profit

= Capital Employed x Normal Rate of Interest\100

= Rs. 25,000 x `frac\{15}{100}`

= Rs. 3,750

Calculation for Super Profit = Real Profit - Normal Profit

= Rs. 5,000 - Rs. 3,750

= Rs. 1,250

Goodwill = Super Profit x No. of years purchase

= Rs. (1,250 x 3) = Rs. 3,750.


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



Location: India

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