Question : From the following information, (i) Capitalisation Method and (ii) at 3 year’s purchase of super profits: What will be the amount of goodwill?
(i) Total Assets Rs. 10,00,000
(ii) External Liabilities Rs. 1,80,000
(iii) Normal Rate of Return 10%
(iv) Average Net Profit of last five years Rs. 1,00,000
Option 1: By capitalization method Rs 1,80,000, super profit method Rs 54,000
Option 2: By capitalization method Rs 54,000, super profit method Rs 1,80,000
Option 3: By capitalization method Rs 1,80,000, super profit method Rs 1,80,000
Option 4: By capitalization method Rs 54,000, super profit method Rs 54,000
Correct Answer: By capitalization method Rs 54,000, super profit method Rs 54,000
Solution : Answer = By capitalization method Rs 54,000, super profit method Rs 54,000
(i) Goodwill as per Capitalisation Method :
Capital Employed (Net Assets) = Total Assets - External Liabilities
= Rs.10,00,000- Rs.1,80,000= Rs.8,20,000
Normal Profit = 10% of Rs.8,20,000 = Rs.82,000
Super Profit = Average Profit - Normal Profit
= Rs. 1,00,000- Rs.82,000 = Rs. 18,000
Goodwill = Super Profit × 100/Normal rate of return
= 18,000 × 100/10 = Rs. 1,80,000
(ii) Goodwill as per 3 year’s purchase of super profits :
Goodwill = Super Profit X Number of years purchased
= Rs. 18,000 × 3 = Rs.54,000. Hence, the correct option is 4.
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