Question : A firm earns Rs.2,20,000. The normal rate of return is 10%. The assets of the firm amounted to Rs.22,00,000 and liabilities are Rs.2,00,000. Value of goodwill by capitalisation of actual average profits will be:
Option 1: Rs.10,000
Option 2: Rs.2,00,000
Option 3: Rs.4,00.000
Option 4: Rs.20,000
Correct Answer: Rs.2,00,000
Solution : Net Assets = Total assets - Outside Liabilities = Rs.22,00,000 - Rs.2,00,000 = Rs.20,00,000. Capitalised Value = Average profit X 100/Normal rate of return = Rs.2,20,000 X 100/10 = Rs.22,00,000. Goodwill = Capitalised Value - Net Assets = Rs.22,00,000 - Rs.20,00,000 = Rs.2,00,000. Hence, the correct option is 2.
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