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From the following information, calculate value of goodwill of the firm by applying capitalisation method: Total capital of the firm 2400000 Normal rate of return 10%. Profit for the year 300000.?
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From the following information, calculate value of goodwill of the fir...
Calculation of Goodwill of the Firm using Capitalisation Method
Given Information:
- Total Capital of the Firm: 2400000
- Normal Rate of Return: 10%
- Profit for the Year: 300000
Explanation:
- The capitalisation method is used to calculate the value of goodwill of a firm.
- This method is based on the assumption that the value of goodwill is equal to the excess of super profits earned by the firm over and above the normal profits.
- Super profits are the profits earned by the firm over and above the normal profits, which are necessary to attract and retain capital.
- The formula for calculating the value of goodwill using capitalisation method is:
- Goodwill = Average Super Profit x Number of Years' Purchase
- Number of Years' Purchase = 100 / Normal Rate of Return
Calculation:
- Normal Rate of Return = 10%
- Number of Years' Purchase = 100 / 10 = 10
- Average Super Profit = Profit for the Year - Normal Profit
- Normal Profit = Total Capital x Normal Rate of Return
- Normal Profit = 2400000 x 10% = 240000
- Average Super Profit = 300000 - 240000 = 60000
- Goodwill = Average Super Profit x Number of Years' Purchase
- Goodwill = 60000 x 10 = 600000
Conclusion:
- The value of goodwill of the firm using capitalisation method is 600000.
Community Answer
From the following information, calculate value of goodwill of the fir...
If we applying average capitalisation method then calculations will be...
capital value of A.P=Average profit×100/NRR
= 3lakh× 100/10=30lakh Rs
Now,capital employed=24lakh Rs
goodwill=Capital value if AP-capital employed
= 30lakh - 24lakh=6lakh Rs
Ans.=600000 Rs
capital value of A.P=Average profit×100/NRR
= 3lakh× 100/10=30lakh Rs
Now,capital employed=24lakh Rs
goodwill=Capital value if AP-capital employed
= 30lakh - 24lakh=6lakh Rs
Ans.=600000 Rs
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From the following information, calculate value of goodwill of the firm by applying capitalisation method: Total capital of the firm 2400000 Normal rate of return 10%. Profit for the year 300000.?
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From the following information, calculate value of goodwill of the firm by applying capitalisation method: Total capital of the firm 2400000 Normal rate of return 10%. Profit for the year 300000.? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about From the following information, calculate value of goodwill of the firm by applying capitalisation method: Total capital of the firm 2400000 Normal rate of return 10%. Profit for the year 300000.? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for From the following information, calculate value of goodwill of the firm by applying capitalisation method: Total capital of the firm 2400000 Normal rate of return 10%. Profit for the year 300000.?.
From the following information, calculate value of goodwill of the firm by applying capitalisation method: Total capital of the firm 2400000 Normal rate of return 10%. Profit for the year 300000.? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about From the following information, calculate value of goodwill of the firm by applying capitalisation method: Total capital of the firm 2400000 Normal rate of return 10%. Profit for the year 300000.? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for From the following information, calculate value of goodwill of the firm by applying capitalisation method: Total capital of the firm 2400000 Normal rate of return 10%. Profit for the year 300000.?.
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