CA Foundation Exam > CA Foundation Questions > Under capitalisation basis goodwill is calcul...
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Under capitalisation basis goodwill is calculated by:
- a)No. of years purchased multiplied with average profits.
- b)No. of years purchased multiplied with super profits.
- c)Summation of the discounted value of expected future benefits.
- d)Super profit divided with expected rate of return
Correct answer is option 'D'. Can you explain this answer?
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Under capitalisation basis goodwill is calculated by:a)No. of years pu...
Under capitalisation basis, goodwill is calculated by:
The correct answer is D: Super profit divided by the expected rate of return.
Here is a detailed explanation:
1. What is capitalisation basis?
- Capitalisation basis is a method used to calculate the value of goodwill in a business.
- It is based on the assumption that the value of a business is determined by its ability to generate profits.
2. What is goodwill?
- Goodwill represents the value of a business's reputation, customer relationships, brand name, and other intangible assets.
- It is an intangible asset that reflects the value of the business beyond its tangible assets.
3. How is goodwill calculated under capitalisation basis?
- Under capitalisation basis, goodwill is calculated by dividing the super profit by the expected rate of return.
4. What is super profit?
- Super profit is the excess profit earned by a business over and above the normal or expected profit.
- It represents the additional profit generated due to the presence of intangible assets like goodwill.
5. What is the expected rate of return?
- The expected rate of return is the rate of return that is considered reasonable or normal for a business in a particular industry or market.
- It is used as a benchmark to assess the profitability of a business and determine the value of goodwill.
6. Why is super profit divided by the expected rate of return?
- Dividing the super profit by the expected rate of return helps determine the value of goodwill as a multiple of the excess profit.
- This calculation takes into account the risk associated with the business and the expected return on investment.
In conclusion, under capitalisation basis, goodwill is calculated by dividing the super profit by the expected rate of return. This method considers the excess profit generated by the business and the normal rate of return expected in the industry.
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The correct answer is D: Super profit divided by the expected rate of return.
Here is a detailed explanation:
1. What is capitalisation basis?
- Capitalisation basis is a method used to calculate the value of goodwill in a business.
- It is based on the assumption that the value of a business is determined by its ability to generate profits.
2. What is goodwill?
- Goodwill represents the value of a business's reputation, customer relationships, brand name, and other intangible assets.
- It is an intangible asset that reflects the value of the business beyond its tangible assets.
3. How is goodwill calculated under capitalisation basis?
- Under capitalisation basis, goodwill is calculated by dividing the super profit by the expected rate of return.
4. What is super profit?
- Super profit is the excess profit earned by a business over and above the normal or expected profit.
- It represents the additional profit generated due to the presence of intangible assets like goodwill.
5. What is the expected rate of return?
- The expected rate of return is the rate of return that is considered reasonable or normal for a business in a particular industry or market.
- It is used as a benchmark to assess the profitability of a business and determine the value of goodwill.
6. Why is super profit divided by the expected rate of return?
- Dividing the super profit by the expected rate of return helps determine the value of goodwill as a multiple of the excess profit.
- This calculation takes into account the risk associated with the business and the expected return on investment.
In conclusion, under capitalisation basis, goodwill is calculated by dividing the super profit by the expected rate of return. This method considers the excess profit generated by the business and the normal rate of return expected in the industry.
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Under capitalisation basis goodwill is calculated by:a)No. of years purchased multiplied with average profits.b)No. of years purchased multiplied with super profits.c)Summation of the discounted value of expected future benefits.d)Super profit divided with expected rate of returnCorrect answer is option 'D'. Can you explain this answer?
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Under capitalisation basis goodwill is calculated by:a)No. of years purchased multiplied with average profits.b)No. of years purchased multiplied with super profits.c)Summation of the discounted value of expected future benefits.d)Super profit divided with expected rate of returnCorrect answer is option 'D'. Can you explain this answer? for CA Foundation 2025 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about Under capitalisation basis goodwill is calculated by:a)No. of years purchased multiplied with average profits.b)No. of years purchased multiplied with super profits.c)Summation of the discounted value of expected future benefits.d)Super profit divided with expected rate of returnCorrect answer is option 'D'. Can you explain this answer? covers all topics & solutions for CA Foundation 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Under capitalisation basis goodwill is calculated by:a)No. of years purchased multiplied with average profits.b)No. of years purchased multiplied with super profits.c)Summation of the discounted value of expected future benefits.d)Super profit divided with expected rate of returnCorrect answer is option 'D'. Can you explain this answer?.
Under capitalisation basis goodwill is calculated by:a)No. of years purchased multiplied with average profits.b)No. of years purchased multiplied with super profits.c)Summation of the discounted value of expected future benefits.d)Super profit divided with expected rate of returnCorrect answer is option 'D'. Can you explain this answer? for CA Foundation 2025 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about Under capitalisation basis goodwill is calculated by:a)No. of years purchased multiplied with average profits.b)No. of years purchased multiplied with super profits.c)Summation of the discounted value of expected future benefits.d)Super profit divided with expected rate of returnCorrect answer is option 'D'. Can you explain this answer? covers all topics & solutions for CA Foundation 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Under capitalisation basis goodwill is calculated by:a)No. of years purchased multiplied with average profits.b)No. of years purchased multiplied with super profits.c)Summation of the discounted value of expected future benefits.d)Super profit divided with expected rate of returnCorrect answer is option 'D'. Can you explain this answer?.
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Under capitalisation basis goodwill is calculated by:a)No. of years purchased multiplied with average profits.b)No. of years purchased multiplied with super profits.c)Summation of the discounted value of expected future benefits.d)Super profit divided with expected rate of returnCorrect answer is option 'D'. Can you explain this answer?, a detailed solution for Under capitalisation basis goodwill is calculated by:a)No. of years purchased multiplied with average profits.b)No. of years purchased multiplied with super profits.c)Summation of the discounted value of expected future benefits.d)Super profit divided with expected rate of returnCorrect answer is option 'D'. Can you explain this answer? has been provided alongside types of Under capitalisation basis goodwill is calculated by:a)No. of years purchased multiplied with average profits.b)No. of years purchased multiplied with super profits.c)Summation of the discounted value of expected future benefits.d)Super profit divided with expected rate of returnCorrect answer is option 'D'. Can you explain this answer? theory, EduRev gives you an
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