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Capital employed in a business is 150000 profits are 50000 in the normal rate a profit of 20% the amount of goodwill as per capitalisation method will be?
Most Upvoted Answer
Capital employed in a business is 150000 profits are 50000 in the norm...
Capital employed - 150000
Average Profit - 50000
Expected rate of return- 20%
Capitalised profit - Average Profit ÷Expected rate of
return ×100
= 50000÷20×100
= 250,000
Goodwill = Capitalised profit - Capital employed
= 250,000-150,000
=1,00,000
Average Profit - 50000
Expected rate of return- 20%
Capitalised profit - Average Profit ÷Expected rate of
return ×100
= 50000÷20×100
= 250,000
Goodwill = Capitalised profit - Capital employed
= 250,000-150,000
=1,00,000
Community Answer
Capital employed in a business is 150000 profits are 50000 in the norm...
Calculation of Goodwill as per Capitalisation Method
Step 1: Calculate the Normal Rate of Return
To determine the goodwill as per the capitalisation method, we first need to calculate the normal rate of return. The normal rate of return is the rate of return expected from a business based on its capital employed. In this case, the capital employed is $150,000 and the profit is $50,000.
Normal Rate of Return = (Profit / Capital Employed) * 100
Normal Rate of Return = ($50,000 / $150,000) * 100
Normal Rate of Return = 33.33%
Step 2: Calculate the Super Profits
Super profits are the excess profits earned by a business over and above the normal rate of return. To calculate the super profits, we subtract the normal rate of return from the actual profit.
Super Profits = Profit - (Capital Employed * Normal Rate of Return)
Super Profits = $50,000 - ($150,000 * 0.3333)
Super Profits = $50,000 - $49,995
Super Profits = $5
Step 3: Calculate the Goodwill
Goodwill is the capitalized value of the super profits. To calculate the goodwill, we divide the super profits by the normal rate of return.
Goodwill = (Super Profits / Normal Rate of Return) * 100
Goodwill = ($5 / 0.3333) * 100
Goodwill = $15
Explanation
The capitalisation method is used to determine the value of goodwill based on the excess profits earned by a business. It assumes that the value of a business is directly proportional to its ability to generate super profits.
In this case, the capital employed in the business is $150,000, and the profit earned is $50,000. The normal rate of return is calculated to be 33.33% by dividing the profit by the capital employed and multiplying by 100.
The super profits are then calculated by subtracting the normal rate of return from the actual profit. In this case, the super profits amount to $5.
Finally, the goodwill is calculated by dividing the super profits by the normal rate of return and multiplying by 100. In this case, the goodwill is $15.
Therefore, as per the capitalisation method, the goodwill for this business will be $15.
Step 1: Calculate the Normal Rate of Return
To determine the goodwill as per the capitalisation method, we first need to calculate the normal rate of return. The normal rate of return is the rate of return expected from a business based on its capital employed. In this case, the capital employed is $150,000 and the profit is $50,000.
Normal Rate of Return = (Profit / Capital Employed) * 100
Normal Rate of Return = ($50,000 / $150,000) * 100
Normal Rate of Return = 33.33%
Step 2: Calculate the Super Profits
Super profits are the excess profits earned by a business over and above the normal rate of return. To calculate the super profits, we subtract the normal rate of return from the actual profit.
Super Profits = Profit - (Capital Employed * Normal Rate of Return)
Super Profits = $50,000 - ($150,000 * 0.3333)
Super Profits = $50,000 - $49,995
Super Profits = $5
Step 3: Calculate the Goodwill
Goodwill is the capitalized value of the super profits. To calculate the goodwill, we divide the super profits by the normal rate of return.
Goodwill = (Super Profits / Normal Rate of Return) * 100
Goodwill = ($5 / 0.3333) * 100
Goodwill = $15
Explanation
The capitalisation method is used to determine the value of goodwill based on the excess profits earned by a business. It assumes that the value of a business is directly proportional to its ability to generate super profits.
In this case, the capital employed in the business is $150,000, and the profit earned is $50,000. The normal rate of return is calculated to be 33.33% by dividing the profit by the capital employed and multiplying by 100.
The super profits are then calculated by subtracting the normal rate of return from the actual profit. In this case, the super profits amount to $5.
Finally, the goodwill is calculated by dividing the super profits by the normal rate of return and multiplying by 100. In this case, the goodwill is $15.
Therefore, as per the capitalisation method, the goodwill for this business will be $15.
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Capital employed in a business is 150000 profits are 50000 in the normal rate a profit of 20% the amount of goodwill as per capitalisation method will be?
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Capital employed in a business is 150000 profits are 50000 in the normal rate a profit of 20% the amount of goodwill as per capitalisation 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 Capital employed in a business is 150000 profits are 50000 in the normal rate a profit of 20% the amount of goodwill as per capitalisation method will be? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Capital employed in a business is 150000 profits are 50000 in the normal rate a profit of 20% the amount of goodwill as per capitalisation method will be?.
Capital employed in a business is 150000 profits are 50000 in the normal rate a profit of 20% the amount of goodwill as per capitalisation 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 Capital employed in a business is 150000 profits are 50000 in the normal rate a profit of 20% the amount of goodwill as per capitalisation method will be? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Capital employed in a business is 150000 profits are 50000 in the normal rate a profit of 20% the amount of goodwill as per capitalisation method will be?.
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