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Firm earned profits of Rs. 80,000, Rs. 1,00,000, Rs. 1,20,000 and Rs. 1,80,000 during 2010-11, 2011-12, 2012-13 and 2013-14 respectively. The firm has capital investment of Rs. 5,00,000. A fair rate of return on investment is 15% p.a. Calculate goodwill of the firm based on three years' purchase of average super profits of last four years.?
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Firm earned profits of Rs. 80,000, Rs. 1,00,000, Rs. 1,20,000 and Rs. ...
Calculation of Goodwill
Step 1: Calculation of Average Super Profit
- Add up all the profits earned by the firm for the last four years: Rs.80,000 + Rs.1,00,000 + Rs.1,20,000 + Rs.1,80,000 = Rs.4,80,000
- Divide the total profits by 4 to get the average profit: Rs.4,80,000 / 4 = Rs.1,20,000
- Deduct a fair rate of return on investment (15% of capital investment of Rs.5,00,000): Rs.75,000 (15% of Rs.5,00,000) from the average profit to get the super profit: Rs.1,20,000 - Rs.75,000 = Rs.45,000
Step 2: Calculation of Goodwill
- Multiply the super profit by three to get the value of goodwill: Rs.45,000 x 3 = Rs.1,35,000
Explanation
Goodwill is the value of reputation, customer loyalty, and other intangible assets that a business possesses. It is calculated by subtracting the fair rate of return on investment from the average profit and then multiplying the resulting super profit by a number of years' purchase.
In this case, the firm earned profits of Rs.80,000, Rs.1,00,000, Rs.1,20,000, and Rs.1,80,000 in the last four years. The average profit is Rs.1,20,000, and the fair rate of return on investment is calculated as 15% of the capital investment of Rs.5,00,000, which is Rs.75,000.
The super profit is calculated as the average profit minus the fair rate of return on investment, which is Rs.1,20,000 - Rs.75,000 = Rs.45,000. The value of goodwill is then calculated by multiplying the super profit by three, which is Rs.45,000 x 3 = Rs.1,35,000.
Thus, the goodwill of the firm based on three years' purchase of average super profits of the last four years is Rs.1,35,000.
Step 1: Calculation of Average Super Profit
- Add up all the profits earned by the firm for the last four years: Rs.80,000 + Rs.1,00,000 + Rs.1,20,000 + Rs.1,80,000 = Rs.4,80,000
- Divide the total profits by 4 to get the average profit: Rs.4,80,000 / 4 = Rs.1,20,000
- Deduct a fair rate of return on investment (15% of capital investment of Rs.5,00,000): Rs.75,000 (15% of Rs.5,00,000) from the average profit to get the super profit: Rs.1,20,000 - Rs.75,000 = Rs.45,000
Step 2: Calculation of Goodwill
- Multiply the super profit by three to get the value of goodwill: Rs.45,000 x 3 = Rs.1,35,000
Explanation
Goodwill is the value of reputation, customer loyalty, and other intangible assets that a business possesses. It is calculated by subtracting the fair rate of return on investment from the average profit and then multiplying the resulting super profit by a number of years' purchase.
In this case, the firm earned profits of Rs.80,000, Rs.1,00,000, Rs.1,20,000, and Rs.1,80,000 in the last four years. The average profit is Rs.1,20,000, and the fair rate of return on investment is calculated as 15% of the capital investment of Rs.5,00,000, which is Rs.75,000.
The super profit is calculated as the average profit minus the fair rate of return on investment, which is Rs.1,20,000 - Rs.75,000 = Rs.45,000. The value of goodwill is then calculated by multiplying the super profit by three, which is Rs.45,000 x 3 = Rs.1,35,000.
Thus, the goodwill of the firm based on three years' purchase of average super profits of the last four years is Rs.1,35,000.
Community Answer
Firm earned profits of Rs. 80,000, Rs. 1,00,000, Rs. 1,20,000 and Rs. ...
Question 10. A firm earned profits of Rs. 80,000, Rs. 1,00,000, Rs. 1,20,000 and
Rs. 1,20,000 and Rs. 1,80,000 during 2010-11, 2011-12, 2012-13 and 2013-14
respectively. The firm has capital investment of Rs. 5,00,000. A fair rate of
return on investment is 15% p.a. Calculate goodwill of the firm based on three
years’ purchase of average super profits of last four years.
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Firm earned profits of Rs. 80,000, Rs. 1,00,000, Rs. 1,20,000 and Rs. 1,80,000 during 2010-11, 2011-12, 2012-13 and 2013-14 respectively. The firm has capital investment of Rs. 5,00,000. A fair rate of return on investment is 15% p.a. Calculate goodwill of the firm based on three years' purchase of average super profits of last four years.?
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Firm earned profits of Rs. 80,000, Rs. 1,00,000, Rs. 1,20,000 and Rs. 1,80,000 during 2010-11, 2011-12, 2012-13 and 2013-14 respectively. The firm has capital investment of Rs. 5,00,000. A fair rate of return on investment is 15% p.a. Calculate goodwill of the firm based on three years' purchase of average super profits of last four years.? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about Firm earned profits of Rs. 80,000, Rs. 1,00,000, Rs. 1,20,000 and Rs. 1,80,000 during 2010-11, 2011-12, 2012-13 and 2013-14 respectively. The firm has capital investment of Rs. 5,00,000. A fair rate of return on investment is 15% p.a. Calculate goodwill of the firm based on three years' purchase of average super profits of last four years.? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Firm earned profits of Rs. 80,000, Rs. 1,00,000, Rs. 1,20,000 and Rs. 1,80,000 during 2010-11, 2011-12, 2012-13 and 2013-14 respectively. The firm has capital investment of Rs. 5,00,000. A fair rate of return on investment is 15% p.a. Calculate goodwill of the firm based on three years' purchase of average super profits of last four years.?.
Firm earned profits of Rs. 80,000, Rs. 1,00,000, Rs. 1,20,000 and Rs. 1,80,000 during 2010-11, 2011-12, 2012-13 and 2013-14 respectively. The firm has capital investment of Rs. 5,00,000. A fair rate of return on investment is 15% p.a. Calculate goodwill of the firm based on three years' purchase of average super profits of last four years.? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about Firm earned profits of Rs. 80,000, Rs. 1,00,000, Rs. 1,20,000 and Rs. 1,80,000 during 2010-11, 2011-12, 2012-13 and 2013-14 respectively. The firm has capital investment of Rs. 5,00,000. A fair rate of return on investment is 15% p.a. Calculate goodwill of the firm based on three years' purchase of average super profits of last four years.? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Firm earned profits of Rs. 80,000, Rs. 1,00,000, Rs. 1,20,000 and Rs. 1,80,000 during 2010-11, 2011-12, 2012-13 and 2013-14 respectively. The firm has capital investment of Rs. 5,00,000. A fair rate of return on investment is 15% p.a. Calculate goodwill of the firm based on three years' purchase of average super profits of last four years.?.
Solutions for Firm earned profits of Rs. 80,000, Rs. 1,00,000, Rs. 1,20,000 and Rs. 1,80,000 during 2010-11, 2011-12, 2012-13 and 2013-14 respectively. The firm has capital investment of Rs. 5,00,000. A fair rate of return on investment is 15% p.a. Calculate goodwill of the firm based on three years' purchase of average super profits of last four years.? in English & in Hindi are available as part of our courses for Commerce.
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