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A firm earns a profit of Rs.30,000 per year. In the same business a 10% return is generally expected. The total assets of the firm are Rs.2,50,000. The value of outsider’s liabilities is Rs.40,000. Find the value of goodwill?
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A firm earns a profit of Rs.30,000 per year. In the same business a 10...
Calculation of Goodwill
Step 1: Calculate the normal profit
Normal Profit = Total Assets x Normal Rate of Return
Normal Rate of Return = 10%
Total Assets = Rs.2,50,000
Normal Profit = 2,50,000 x 10/100 = Rs.25,000
Step 2: Calculate the Super Profit
Super Profit = Actual Profit - Normal Profit
Actual Profit = Rs.30,000
Normal Profit = Rs.25,000
Super Profit = 30,000 - 25,000 = Rs.5,000
Step 3: Calculate the Goodwill
Goodwill = Super Profit x 100 / Normal Rate of Return
Normal Rate of Return = 10%
Goodwill = 5,000 x 100 / 10 = Rs.50,000
Explanation
Goodwill is an intangible asset that represents the value of a business's reputation, customer base, and other intangible assets. It is calculated by subtracting the normal rate of return from the actual profit earned by the business and then multiplying it by 100 and dividing by the normal rate of return.
In this case, the normal profit is calculated by multiplying the total assets by the normal rate of return, which is 10%. The total assets are given as Rs.2,50,000, so the normal profit is Rs.25,000.
The actual profit earned by the business is given as Rs.30,000. To calculate the super profit, we subtract the normal profit from the actual profit, which gives us Rs.5,000.
Finally, we calculate the goodwill by multiplying the super profit by 100 and dividing by the normal rate of return. In this case, the goodwill is calculated as Rs.50,000.
Therefore, the value of goodwill for the given business is Rs.50,000.
Step 1: Calculate the normal profit
Normal Profit = Total Assets x Normal Rate of Return
Normal Rate of Return = 10%
Total Assets = Rs.2,50,000
Normal Profit = 2,50,000 x 10/100 = Rs.25,000
Step 2: Calculate the Super Profit
Super Profit = Actual Profit - Normal Profit
Actual Profit = Rs.30,000
Normal Profit = Rs.25,000
Super Profit = 30,000 - 25,000 = Rs.5,000
Step 3: Calculate the Goodwill
Goodwill = Super Profit x 100 / Normal Rate of Return
Normal Rate of Return = 10%
Goodwill = 5,000 x 100 / 10 = Rs.50,000
Explanation
Goodwill is an intangible asset that represents the value of a business's reputation, customer base, and other intangible assets. It is calculated by subtracting the normal rate of return from the actual profit earned by the business and then multiplying it by 100 and dividing by the normal rate of return.
In this case, the normal profit is calculated by multiplying the total assets by the normal rate of return, which is 10%. The total assets are given as Rs.2,50,000, so the normal profit is Rs.25,000.
The actual profit earned by the business is given as Rs.30,000. To calculate the super profit, we subtract the normal profit from the actual profit, which gives us Rs.5,000.
Finally, we calculate the goodwill by multiplying the super profit by 100 and dividing by the normal rate of return. In this case, the goodwill is calculated as Rs.50,000.
Therefore, the value of goodwill for the given business is Rs.50,000.
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A firm earns a profit of Rs.30,000 per year. In the same business a 10% return is generally expected. The total assets of the firm are Rs.2,50,000. The value of outsider’s liabilities is Rs.40,000. Find the value of goodwill?
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A firm earns a profit of Rs.30,000 per year. In the same business a 10% return is generally expected. The total assets of the firm are Rs.2,50,000. The value of outsider’s liabilities is Rs.40,000. Find the value of goodwill? for Class 12 2024 is part of Class 12 preparation. The Question and answers have been prepared according to the Class 12 exam syllabus. Information about A firm earns a profit of Rs.30,000 per year. In the same business a 10% return is generally expected. The total assets of the firm are Rs.2,50,000. The value of outsider’s liabilities is Rs.40,000. Find the value of goodwill? covers all topics & solutions for Class 12 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for A firm earns a profit of Rs.30,000 per year. In the same business a 10% return is generally expected. The total assets of the firm are Rs.2,50,000. The value of outsider’s liabilities is Rs.40,000. Find the value of goodwill?.
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