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The average net profit expected of the firm in future are Rs 68000 per year and capital invested in the business by the firm in Rs 350000 the rate of interest expected from capital invested in the class of business is 12 percent the remuneration of partner is estimated is to be Rs 8000 for the year you are required. Find out the value of goodwill on the basis of two years purchase of super profit?
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The average net profit expected of the firm in future are Rs 68000 per...
Valuation of Goodwill Based on Super Profit


Given Information:


  • Net profit expected: Rs 68000 per year

  • Capital invested: Rs 350000

  • Rate of interest: 12%

  • Partner's remuneration: Rs 8000 per year



Calculation of Super Profit:

Super Profit = Average Net Profit - Normal Profit

Normal Profit = Capital Invested × Rate of Interest = 350000 × 12% = Rs 42000

Super Profit = 68000 - 42000 = Rs 26000


Calculation of Goodwill:

Goodwill = Super Profit × Number of Years Purchase

Number of Years Purchase = 2 (given)

Goodwill = 26000 × 2 = Rs 52000


Explanation:

Goodwill is an intangible asset that is the difference between the total value of the business and the value of its net assets. It represents the reputation, customer base, brand value, and other non-physical assets of the business. The value of goodwill can be calculated based on the excess profit generated by the business over the normal profit expected from the capital invested.

In this case, the super profit generated by the business is Rs 26000 per year, which is the excess profit over the normal profit of Rs 42000 (capital invested × rate of interest). The value of goodwill is calculated by multiplying the super profit by the number of years purchase, which is 2 in this case.

Therefore, the value of goodwill based on two years purchase of super profit is Rs 52000.
Community Answer
The average net profit expected of the firm in future are Rs 68000 per...
Average profit= 68000-remuneration
                       = rs. 60000
Normal profit= capital x normal rate of return/100
                     = 350000 x 12/100
                     = 42000
Super profit = Average profit - normal profit
                    = 60000 -  42000 = Rs. 18000
Goodwill = Super profit x No. of years' of purchase
               = 18000 x 2 = Rs. 36000 is the goodwill
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The average net profit expected of the firm in future are Rs 68000 per year and capital invested in the business by the firm in Rs 350000 the rate of interest expected from capital invested in the class of business is 12 percent the remuneration of partner is estimated is to be Rs 8000 for the year you are required. Find out the value of goodwill on the basis of two years purchase of super profit?
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