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Balance sheet: Liabilities: Capital= 250000, Creditors= 80000, Bills payable= 20000 Assets: land= 180000, Machinery= 110000, Furniture= 2000, Stock= 8000, Cash at bank= 50000. The profit of the business for five years : 40000,42000,45000,50000,53000. The assets are revalued as: Land= 194000, Machinery= 118000 and Furniture= 1000. No remuneration was charged to A. Find out goodwill from capitalisation method. The rate of return is 10%p.a.?
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Balance sheet: Liabilities: Capital= 250000, Creditors= 80000, Bills p...
Calculation of Goodwill
Step 1: Calculate the Average Profit
Average Profit = (40000+42000+45000+50000+53000)/5
= 46000
Step 2: Determine the Super Profit
Super Profit = Average Profit - Normal Profit
= 46000 - (250000 x 10%)
= 21000
Step 3: Calculate the Goodwill
Goodwill = Super Profit x Capitalisation Rate
= 21000 x (100/10)
= 210000
Therefore, the goodwill of the business is Rs. 210000.
Explanation
The capitalisation method is used to value goodwill. It is based on the assumption that the value of a business is equal to the sum of its net assets (assets minus liabilities) plus the value of its goodwill. Goodwill is the value of a business's reputation, customer base, and other intangible assets that contribute to its success.
To calculate goodwill using the capitalisation method, we first need to calculate the average profit of the business. This is done by adding up the profits of the business for a specific period (in this case, five years) and dividing the sum by the number of years.
Once we have the average profit, we need to determine the super profit. This is the excess profit earned by the business above the normal profit that would be expected from the capital invested. In this case, we assume a normal profit of 10% of the capital invested, which is Rs. 250000.
Finally, we calculate the goodwill by multiplying the super profit by the capitalisation rate. The capitalisation rate is the rate of return expected from the investment. In this case, it is 10%.
It is important to note that the capitalisation method is just one of the methods used to value goodwill. Other methods include the excess earnings method and the discounted cash flow method.
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Balance sheet: Liabilities: Capital= 250000, Creditors= 80000, Bills payable= 20000 Assets: land= 180000, Machinery= 110000, Furniture= 2000, Stock= 8000, Cash at bank= 50000. The profit of the business for five years : 40000,42000,45000,50000,53000. The assets are revalued as: Land= 194000, Machinery= 118000 and Furniture= 1000. No remuneration was charged to A. Find out goodwill from capitalisation method. The rate of return is 10%p.a.?
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Balance sheet: Liabilities: Capital= 250000, Creditors= 80000, Bills payable= 20000 Assets: land= 180000, Machinery= 110000, Furniture= 2000, Stock= 8000, Cash at bank= 50000. The profit of the business for five years : 40000,42000,45000,50000,53000. The assets are revalued as: Land= 194000, Machinery= 118000 and Furniture= 1000. No remuneration was charged to A. Find out goodwill from capitalisation method. The rate of return is 10%p.a.? for B Com 2024 is part of B Com preparation. The Question and answers have been prepared according to the B Com exam syllabus. Information about Balance sheet: Liabilities: Capital= 250000, Creditors= 80000, Bills payable= 20000 Assets: land= 180000, Machinery= 110000, Furniture= 2000, Stock= 8000, Cash at bank= 50000. The profit of the business for five years : 40000,42000,45000,50000,53000. The assets are revalued as: Land= 194000, Machinery= 118000 and Furniture= 1000. No remuneration was charged to A. Find out goodwill from capitalisation method. The rate of return is 10%p.a.? covers all topics & solutions for B Com 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Balance sheet: Liabilities: Capital= 250000, Creditors= 80000, Bills payable= 20000 Assets: land= 180000, Machinery= 110000, Furniture= 2000, Stock= 8000, Cash at bank= 50000. The profit of the business for five years : 40000,42000,45000,50000,53000. The assets are revalued as: Land= 194000, Machinery= 118000 and Furniture= 1000. No remuneration was charged to A. Find out goodwill from capitalisation method. The rate of return is 10%p.a.?.
Balance sheet: Liabilities: Capital= 250000, Creditors= 80000, Bills payable= 20000 Assets: land= 180000, Machinery= 110000, Furniture= 2000, Stock= 8000, Cash at bank= 50000. The profit of the business for five years : 40000,42000,45000,50000,53000. The assets are revalued as: Land= 194000, Machinery= 118000 and Furniture= 1000. No remuneration was charged to A. Find out goodwill from capitalisation method. The rate of return is 10%p.a.? for B Com 2024 is part of B Com preparation. The Question and answers have been prepared according to the B Com exam syllabus. Information about Balance sheet: Liabilities: Capital= 250000, Creditors= 80000, Bills payable= 20000 Assets: land= 180000, Machinery= 110000, Furniture= 2000, Stock= 8000, Cash at bank= 50000. The profit of the business for five years : 40000,42000,45000,50000,53000. The assets are revalued as: Land= 194000, Machinery= 118000 and Furniture= 1000. No remuneration was charged to A. Find out goodwill from capitalisation method. The rate of return is 10%p.a.? covers all topics & solutions for B Com 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Balance sheet: Liabilities: Capital= 250000, Creditors= 80000, Bills payable= 20000 Assets: land= 180000, Machinery= 110000, Furniture= 2000, Stock= 8000, Cash at bank= 50000. The profit of the business for five years : 40000,42000,45000,50000,53000. The assets are revalued as: Land= 194000, Machinery= 118000 and Furniture= 1000. No remuneration was charged to A. Find out goodwill from capitalisation method. The rate of return is 10%p.a.?.
Solutions for Balance sheet: Liabilities: Capital= 250000, Creditors= 80000, Bills payable= 20000 Assets: land= 180000, Machinery= 110000, Furniture= 2000, Stock= 8000, Cash at bank= 50000. The profit of the business for five years : 40000,42000,45000,50000,53000. The assets are revalued as: Land= 194000, Machinery= 118000 and Furniture= 1000. No remuneration was charged to A. Find out goodwill from capitalisation method. The rate of return is 10%p.a.? in English & in Hindi are available as part of our courses for B Com.
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