Question

Average profit of firm is Rs 3,00,000. Total tangible assets in the firm are Rs 28,00,000 and outside liabilities are Rs 8,00,000. In same type of business, normal rate of return is 10% of capital employed. Calculate goodwill by Capitalisation of Super Profit Method.

• A. 14,00,000
• B. 16,00,000
• C. 18,00,000
• D. 10,00,000

Hint:

Goodwill by Capitalisation of Super Profit = Super Profit × (100 / Normal Rate of Return). Super Profit = Average Profit - Normal Profit.

Answer 1

The Correct Option is D

Capital Employed, calculated as Total Assets minus Outside Liabilities, is Rs 28,00,000 - Rs 8,00,000, resulting in Rs 20,00,000. Normal Profit, derived from Capital Employed multiplied by the Normal Rate of Return, is Rs 20,00,000 × 10%, equaling Rs 2,00,000. Super Profit is determined by subtracting Normal Profit from Average Profit: Rs 3,00,000 - Rs 2,00,000, which yields Rs 1,00,000. Goodwill is calculated by multiplying Super Profit by (100 divided by the Normal Rate of Return): Rs 1,00,000 × (100/10), amounting to Rs 10,00,000.