A firm earned a profit of Rs 50000 on the capital of RS./400000 normal rate of return is 12%calculate the value of goodwill at 3 year purchase of super profit
Question
A firm earned a profit of Rs 50000 on the capital of RS./400000
Normal rate of return is 12%
Calculate the value of goodwill at 3 years purchase of super profit.
Solution
Sure, here are the steps to calculate the value of goodwill at 3 years purchase of super profit:
Step 1: Calculate the Normal Profit Normal Profit = Capital * Normal Rate of Return Normal Profit = 400000 * 12/100 Normal Profit = Rs. 48000
Step 2: Calculate the Super Profit Super Profit = Actual Profit - Normal Profit Super Profit = 50000 - 48000 Super Profit = Rs. 2000
Step 3: Calculate the Goodwill Goodwill = Super Profit * Number of Years’ Purchase Goodwill = 2000 * 3 Goodwill = Rs. 6000
So, the value of goodwill at 3 years purchase of super profit is Rs. 6000.
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