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The profit and losses for the previous years are 2015 profit ₹ 10,000 2016 loss ₹ 17,000 2017 profit ₹ 17,000 2018 profit ₹ 75,000. The average capital employed in the business is ₹ 2,00,000. The rate of interest expected from capital invested is 10%. The remuneration from alternative employment of the proprietor ₹ 6,000 p.a. Calculate the value of goodwill on the basis of 2 years purchases of super profits based on average of 3 years.?
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The profit and losses for the previous years are 2015 profit ₹ 10,000 ...
Solution:
Given data:
- Profit and losses for the previous years: 2015 profit ₹ 10,000, 2016 loss ₹ 17,000, 2017 profit ₹ 17,000, 2018 profit ₹ 75,000
- Average capital employed in the business: ₹ 2,00,000
- Rate of interest expected from capital invested: 10%
- Remuneration from alternative employment of the proprietor: ₹ 6,000 p.a.
Calculation of super profits:
- Average of 3 years = (10,000 - 17,000 + 17,000 + 75,000)/3 = ₹ 28,333.33
- Normal profit = 2,00,000 x 10% = ₹ 20,000
- Super profit = 28,333.33 - 20,000 = ₹ 8,333.33
Calculation of goodwill:
- 2 years purchases of super profits = 2 x 8,333.33 = ₹ 16,666.67
- Adjusted super profit = 16,666.67 - 6,000 = ₹ 10,666.67
- Value of goodwill = Adjusted super profit x Years of purchase
- Years of purchase = (Average capital employed x rate of interest)/Adjusted super profit
- Years of purchase = (2,00,000 x 10%)/10,666.67 = 1.87
- Value of goodwill = 10,666.67 x 1.87 = ₹ 19,999.99 or ₹ 20,000 (rounded off)
Explanation:
- Goodwill is an intangible asset that represents the value of a business beyond its tangible assets and liabilities.
- It is calculated based on the super profits earned by a business, which are the profits in excess of the normal profit that can be attributed to factors such as brand reputation, customer loyalty, and efficient management.
- In this case, the super profit is calculated as the average of 3 years' profits minus the normal profit.
- The 2 years' purchases of super profits are then adjusted for the proprietor's remuneration from alternative employment, which is subtracted from the total.
- The value of goodwill is then calculated based on the adjusted super profit and the number of years of purchase, which is determined by dividing the average capital employed multiplied by the rate of interest by the adjusted super profit.
- In this case, the value of goodwill is ₹ 20,000, which represents the premium that a buyer would be willing to pay for the business based on its past performance and potential for future growth.
Given data:
- Profit and losses for the previous years: 2015 profit ₹ 10,000, 2016 loss ₹ 17,000, 2017 profit ₹ 17,000, 2018 profit ₹ 75,000
- Average capital employed in the business: ₹ 2,00,000
- Rate of interest expected from capital invested: 10%
- Remuneration from alternative employment of the proprietor: ₹ 6,000 p.a.
Calculation of super profits:
- Average of 3 years = (10,000 - 17,000 + 17,000 + 75,000)/3 = ₹ 28,333.33
- Normal profit = 2,00,000 x 10% = ₹ 20,000
- Super profit = 28,333.33 - 20,000 = ₹ 8,333.33
Calculation of goodwill:
- 2 years purchases of super profits = 2 x 8,333.33 = ₹ 16,666.67
- Adjusted super profit = 16,666.67 - 6,000 = ₹ 10,666.67
- Value of goodwill = Adjusted super profit x Years of purchase
- Years of purchase = (Average capital employed x rate of interest)/Adjusted super profit
- Years of purchase = (2,00,000 x 10%)/10,666.67 = 1.87
- Value of goodwill = 10,666.67 x 1.87 = ₹ 19,999.99 or ₹ 20,000 (rounded off)
Explanation:
- Goodwill is an intangible asset that represents the value of a business beyond its tangible assets and liabilities.
- It is calculated based on the super profits earned by a business, which are the profits in excess of the normal profit that can be attributed to factors such as brand reputation, customer loyalty, and efficient management.
- In this case, the super profit is calculated as the average of 3 years' profits minus the normal profit.
- The 2 years' purchases of super profits are then adjusted for the proprietor's remuneration from alternative employment, which is subtracted from the total.
- The value of goodwill is then calculated based on the adjusted super profit and the number of years of purchase, which is determined by dividing the average capital employed multiplied by the rate of interest by the adjusted super profit.
- In this case, the value of goodwill is ₹ 20,000, which represents the premium that a buyer would be willing to pay for the business based on its past performance and potential for future growth.
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The profit and losses for the previous years are 2015 profit ₹ 10,000 ...
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The profit and losses for the previous years are 2015 profit ₹ 10,000 2016 loss ₹ 17,000 2017 profit ₹ 17,000 2018 profit ₹ 75,000. The average capital employed in the business is ₹ 2,00,000. The rate of interest expected from capital invested is 10%. The remuneration from alternative employment of the proprietor ₹ 6,000 p.a. Calculate the value of goodwill on the basis of 2 years purchases of super profits based on average of 3 years.?
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The profit and losses for the previous years are 2015 profit ₹ 10,000 2016 loss ₹ 17,000 2017 profit ₹ 17,000 2018 profit ₹ 75,000. The average capital employed in the business is ₹ 2,00,000. The rate of interest expected from capital invested is 10%. The remuneration from alternative employment of the proprietor ₹ 6,000 p.a. Calculate the value of goodwill on the basis of 2 years purchases of super profits based on average of 3 years.? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about The profit and losses for the previous years are 2015 profit ₹ 10,000 2016 loss ₹ 17,000 2017 profit ₹ 17,000 2018 profit ₹ 75,000. The average capital employed in the business is ₹ 2,00,000. The rate of interest expected from capital invested is 10%. The remuneration from alternative employment of the proprietor ₹ 6,000 p.a. Calculate the value of goodwill on the basis of 2 years purchases of super profits based on average of 3 years.? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for The profit and losses for the previous years are 2015 profit ₹ 10,000 2016 loss ₹ 17,000 2017 profit ₹ 17,000 2018 profit ₹ 75,000. The average capital employed in the business is ₹ 2,00,000. The rate of interest expected from capital invested is 10%. The remuneration from alternative employment of the proprietor ₹ 6,000 p.a. Calculate the value of goodwill on the basis of 2 years purchases of super profits based on average of 3 years.?.
The profit and losses for the previous years are 2015 profit ₹ 10,000 2016 loss ₹ 17,000 2017 profit ₹ 17,000 2018 profit ₹ 75,000. The average capital employed in the business is ₹ 2,00,000. The rate of interest expected from capital invested is 10%. The remuneration from alternative employment of the proprietor ₹ 6,000 p.a. Calculate the value of goodwill on the basis of 2 years purchases of super profits based on average of 3 years.? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about The profit and losses for the previous years are 2015 profit ₹ 10,000 2016 loss ₹ 17,000 2017 profit ₹ 17,000 2018 profit ₹ 75,000. The average capital employed in the business is ₹ 2,00,000. The rate of interest expected from capital invested is 10%. The remuneration from alternative employment of the proprietor ₹ 6,000 p.a. Calculate the value of goodwill on the basis of 2 years purchases of super profits based on average of 3 years.? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for The profit and losses for the previous years are 2015 profit ₹ 10,000 2016 loss ₹ 17,000 2017 profit ₹ 17,000 2018 profit ₹ 75,000. The average capital employed in the business is ₹ 2,00,000. The rate of interest expected from capital invested is 10%. The remuneration from alternative employment of the proprietor ₹ 6,000 p.a. Calculate the value of goodwill on the basis of 2 years purchases of super profits based on average of 3 years.?.
Solutions for The profit and losses for the previous years are 2015 profit ₹ 10,000 2016 loss ₹ 17,000 2017 profit ₹ 17,000 2018 profit ₹ 75,000. The average capital employed in the business is ₹ 2,00,000. The rate of interest expected from capital invested is 10%. The remuneration from alternative employment of the proprietor ₹ 6,000 p.a. Calculate the value of goodwill on the basis of 2 years purchases of super profits based on average of 3 years.? in English & in Hindi are available as part of our courses for CA Foundation.
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