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The total capital employed in the company is ₹8,00,000 a reasonable rate of return is 15% and the profit of the year is 412,00,000. The value of goodwill of the company as per the capitalization method will be?
Most Upvoted Answer
The total capital employed in the company is ₹8,00,000 a reasonable ra...
Calculation of Goodwill Using Capitalization Method
Total Capital Employed: ₹8,00,000
Reasonable Rate of Return: 15%
Profit of the Year: ₹4,12,00,000
Step 1: Calculation of Normal Profits
Normal Profits = Total Capital Employed x Reasonable Rate of Return
Normal Profits = ₹8,00,000 x 15% = ₹1,20,000
Step 2: Calculation of Super Profits
Super Profits = Actual Profits - Normal Profits
Super Profits = ₹4,12,00,000 - ₹1,20,000 = ₹4,10,80,000
Step 3: Calculation of Goodwill
Goodwill = Super Profits / Reasonable Rate of Return
Goodwill = ₹4,10,80,000 / 15% = ₹27,38,66,667
Therefore, the value of goodwill of the company as per the capitalization method will be ₹27,38,66,667. This method assumes that the business will continue to generate the same level of profits in the future and the rate of return on capital employed will remain the same. The calculation of goodwill using this method is based on the assumption that the super profits earned by the business are due to the intangible assets such as reputation, customer base, etc. and not due to the physical assets owned by the business.
Total Capital Employed: ₹8,00,000
Reasonable Rate of Return: 15%
Profit of the Year: ₹4,12,00,000
Step 1: Calculation of Normal Profits
Normal Profits = Total Capital Employed x Reasonable Rate of Return
Normal Profits = ₹8,00,000 x 15% = ₹1,20,000
Step 2: Calculation of Super Profits
Super Profits = Actual Profits - Normal Profits
Super Profits = ₹4,12,00,000 - ₹1,20,000 = ₹4,10,80,000
Step 3: Calculation of Goodwill
Goodwill = Super Profits / Reasonable Rate of Return
Goodwill = ₹4,10,80,000 / 15% = ₹27,38,66,667
Therefore, the value of goodwill of the company as per the capitalization method will be ₹27,38,66,667. This method assumes that the business will continue to generate the same level of profits in the future and the rate of return on capital employed will remain the same. The calculation of goodwill using this method is based on the assumption that the super profits earned by the business are due to the intangible assets such as reputation, customer base, etc. and not due to the physical assets owned by the business.
Community Answer
The total capital employed in the company is ₹8,00,000 a reasonable ra...
Total capitalised value of the firm = average profit ×100 ÷ nrr
=4,12,00,000 ×100÷15
=₹ 27,46,66,667 ;
Goodwill = total capitalised value of the firm - capital employed
= 27,46,66,667 - 8,00,000
= ₹ 27,38,06,667
=4,12,00,000 ×100÷15
=₹ 27,46,66,667 ;
Goodwill = total capitalised value of the firm - capital employed
= 27,46,66,667 - 8,00,000
= ₹ 27,38,06,667
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The total capital employed in the company is ₹8,00,000 a reasonable rate of return is 15% and the profit of the year is 412,00,000. The value of goodwill of the company as per the capitalization method will be?
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The total capital employed in the company is ₹8,00,000 a reasonable rate of return is 15% and the profit of the year is 412,00,000. The value of goodwill of the company as per the capitalization method will be? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about The total capital employed in the company is ₹8,00,000 a reasonable rate of return is 15% and the profit of the year is 412,00,000. The value of goodwill of the company as per the capitalization method will be? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for The total capital employed in the company is ₹8,00,000 a reasonable rate of return is 15% and the profit of the year is 412,00,000. The value of goodwill of the company as per the capitalization method will be?.
The total capital employed in the company is ₹8,00,000 a reasonable rate of return is 15% and the profit of the year is 412,00,000. The value of goodwill of the company as per the capitalization method will be? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about The total capital employed in the company is ₹8,00,000 a reasonable rate of return is 15% and the profit of the year is 412,00,000. The value of goodwill of the company as per the capitalization method will be? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for The total capital employed in the company is ₹8,00,000 a reasonable rate of return is 15% and the profit of the year is 412,00,000. The value of goodwill of the company as per the capitalization method will be?.
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