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