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Question
From the following information, calculate value of goodwill of the firm by applying Capitalisation Method: Total Capital of the firm ₹ 16,00,000.
Normal rate of return 10%. Profit for the year ₹ 2,00,000.
Solution
Goodwill = Capitalised Value of Profit - Actual Capital
Capitalised Value of Profit = `["Profit" xx 100]/"Normal rate of Return"`
= `[ 2,00,000 xx 100 ]/10`
= Rs. 20,00,000.
Total Capital = Rs 16,00,000
∴ Goodwill = 20,00,000 - 16,00,000 = Rs. 4,00,000.
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