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Question
A business has earned average profits of Rs. 1,00,000 during the last few years and the normal rate of return in a similar business is 10%. Ascertain the value of goodwill by capitalization average profits method, given that the value of net assets of the business is Rs. 8,20,000.
Options
190000
200000
180000
170000
MCQ
Solution
180000
Explanation:
Capitalized Value of Average Profits = `(1,00,000 × 100)/10` = 10,00,000
Goodwill = Capitalized value - Net Assets = Rs. 10,00,000 - Rs. 8,20,000 = Rs. 1,80,000
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Methods of Valuation of Goodwill
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