Question : Average profit earned by a firm is Rs. 2,50,000 which includes overvaluation of stock of Rs 10,000 on average basis. Capital invested in the business is Rs. 14,00,000 and the normal rate of return is 15%. Calculate goodwill of the firm on the basis of 4 times the super profit.
Option 1: Rs 30,000
Option 2: Rs 40,000
Option 3: Rs 1,20,000
Option 4: None of these
Correct Answer: Rs 1,20,000
Solution : Answer = Rs 1,20,000
Average Profit = Rs. 2,50,000 Overvaluation of Stock = Rs. 10,000
Actual Average Profit = Rs. 2,50,000 = Rs. 10,000 (Note) = Rs. 2,40,000
Normal Profit = Capital Employed (Investment) × Normal Rate of Return/100
= Rs. 14,00,000 × = Rs. 2,10,000
Super Profit = Actual Average Profit - Normal Profit = Rs. 2,40,000 – Rs. 2,10,000 = Rs.30,000
Goodwill = Super Profit × 4
= Rs. 30,000 × 4 = Rs. 1,20,000.
Note: Overvaluation of stock is deducted as it increases the net profit. Hence, the correct option is 3.
Question : A firm earned Rs. 60,000 as profit, the normal rate of return being 10%. Assets of the firm are Rs. 7,20,000 (excluding goodwill) and Liabilities are Rs. 2,40,000. The value of goodwill by Capitalisation of Average Profit Method is
Option 1: Rs 1,20,000
Option 2: RS 60,000
Option 3: Rs 4,80,000
Option 4: Rs 2,40,000
Question : A firm earned average profit of Rs.45.000. Rate of return on capital employed is 12% p.a. Total capital employed is Rs.4,00,000. Goodwill on the basis of two years purchase of super profit is:
Option 1: Rs.6,000
Option 2: Rs.12,000
Option 3: Rs.18,000
Question : Capital invested in a firm is Rs. 10,00,000. Normal Rate of Return of 10%. The average profits of the firm are Rs. 1,28,000 (after an abnormal loss of Rs. 8,000). Value of Goodwill at two years' purchase of Super Profit will be
Option 1: Rs. 72,000
Option 2: Rs. 40,000
Option 3: Rs. 2,40,000
Option 4: Rs. 1,80,000
Question : The goodwill of a firm is Rs.54,000 valued at 4 years purchase of super profit. The capital employed of firm is Rs.2.00,000 and normal rate of return is 10%. The average profit of firm is:
Option 1: Rs.23,500
Option 2: Rs.33,500
Option 3: Rs.20,000
Option 4: Rs.24,500
Question : Calculate the value of goodwill at 3 years' purchase when: Capital employed Rs.2,50,000; Average profit Rs.30,000 and normal rate of return is 10%.
Option 1: Rs.33,000
Option 2: Rs.25,000
Option 3: Rs.30,000
Option 4: Rs.15,000
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