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Question
From the following details, calculate the value of goodwill at 2 years purchase of super profit:
- Total assets of a firm are ₹ 5,00,000
- The liabilities of the firm are ₹ 2,00,000
- Normal rate of return in this class of business is 12.5%.
- Average profit of the firm is ₹ 60,000.
Solution
Capital employed = fixed assets + current assets – current liabilities
= 5,00,000 – 2,00,000
= ₹ 3,00,000
Normal profit = Capital employed × Normal rate of return
= `3,00,000 xx 12.5/100`
= ₹ 37,500
Super profit = Average profit – Normal profit
= 60,000 – 37,500
= ₹ 22,500
Goodwill = Super profit × Number of years of purchase
= ₹ 22,500 × 2
= ₹ 45,000
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| Rs. | |
| 2013 | 40,000 |
| 2014 | 50,000 |
| 2015 | 60,000 |
| 2016 | 50,000 |
| 2017 | 60,000 |
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Goodwill is an ____________ asset.
