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. From the following information, compute the value of Goodwill as per ‘Capitalisation of Average Profits method’ : (a) Capital employed : ` 15,00,000 (b) Normal rate of profit : 10% (c) Net profit before tax (Tax rate @ 30%) Year ended 2020-21 2019-20 2018-19 2017-18 2016-17 Profit (`) 2,75,000 3,00,000 2,60,000 2,80,000 2,20,000?
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. From the following information, compute the value of Goodwill as per...
Calculation of Goodwill using Capitalisation of Average Profits Method
Given Information:
(a) Capital Employed: `15,00,000
(b) Normal Rate of Profit: 10%
(c) Net Profit before Tax (Tax rate @ 30%):
Year Ended | Profit
2020-21 | `2,75,000
2019-20 | `3,00,000
2018-19 | `2,60,000
2017-18 | `2,80,000
2016-17 | `2,20,000
Calculation of Average Profit:
Average Profit = Total Profit ÷ Number of Years
Total Profit = `2,75,000 + `3,00,000 + `2,60,000 + `2,80,000 + `2,20,000
Total Profit = `13,35,000
Number of Years = 5
Average Profit = `13,35,000 ÷ 5
Average Profit = `2,67,000
Capitalisation of Average Profit Method:
Goodwill = Average Profit x Number of Years of Purchase ÷ Normal Rate of Return
Number of Years of Purchase = 2 (Assuming)
Normal Rate of Return = 10%
Goodwill = `2,67,000 x 2 ÷ 10%
Goodwill = `53,40,000
Therefore, the value of goodwill as per Capitalisation of Average Profit method is `53,40,000.
Explanation:
Goodwill is an intangible asset that represents the reputation, brand value, and relationship of a business with its customers. It is calculated using various methods, such as Capitalisation of Average Profits, Super Profits, and Annuity Method.
In this question, we have calculated the value of goodwill using the Capitalisation of Average Profits method. Firstly, we have calculated the average profit of the last five years, which is `2,67,000. Then, we have assumed the number of years of purchase as 2 and the normal rate of return as 10%.
Finally, we have applied the formula of Capitalisation of Average Profit method to calculate the value of goodwill, which is `53,40,000. This implies that the reputation and brand value of the business are strong, and it is expected to generate a profit of `2,67,000 for the next two years at a normal rate of return of 10%.
Given Information:
(a) Capital Employed: `15,00,000
(b) Normal Rate of Profit: 10%
(c) Net Profit before Tax (Tax rate @ 30%):
Year Ended | Profit
2020-21 | `2,75,000
2019-20 | `3,00,000
2018-19 | `2,60,000
2017-18 | `2,80,000
2016-17 | `2,20,000
Calculation of Average Profit:
Average Profit = Total Profit ÷ Number of Years
Total Profit = `2,75,000 + `3,00,000 + `2,60,000 + `2,80,000 + `2,20,000
Total Profit = `13,35,000
Number of Years = 5
Average Profit = `13,35,000 ÷ 5
Average Profit = `2,67,000
Capitalisation of Average Profit Method:
Goodwill = Average Profit x Number of Years of Purchase ÷ Normal Rate of Return
Number of Years of Purchase = 2 (Assuming)
Normal Rate of Return = 10%
Goodwill = `2,67,000 x 2 ÷ 10%
Goodwill = `53,40,000
Therefore, the value of goodwill as per Capitalisation of Average Profit method is `53,40,000.
Explanation:
Goodwill is an intangible asset that represents the reputation, brand value, and relationship of a business with its customers. It is calculated using various methods, such as Capitalisation of Average Profits, Super Profits, and Annuity Method.
In this question, we have calculated the value of goodwill using the Capitalisation of Average Profits method. Firstly, we have calculated the average profit of the last five years, which is `2,67,000. Then, we have assumed the number of years of purchase as 2 and the normal rate of return as 10%.
Finally, we have applied the formula of Capitalisation of Average Profit method to calculate the value of goodwill, which is `53,40,000. This implies that the reputation and brand value of the business are strong, and it is expected to generate a profit of `2,67,000 for the next two years at a normal rate of return of 10%.
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. From the following information, compute the value of Goodwill as per ‘Capitalisation of Average Profits method’ : (a) Capital employed : ` 15,00,000 (b) Normal rate of profit : 10% (c) Net profit before tax (Tax rate @ 30%) Year ended 2020-21 2019-20 2018-19 2017-18 2016-17 Profit (`) 2,75,000 3,00,000 2,60,000 2,80,000 2,20,000?
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. From the following information, compute the value of Goodwill as per ‘Capitalisation of Average Profits method’ : (a) Capital employed : ` 15,00,000 (b) Normal rate of profit : 10% (c) Net profit before tax (Tax rate @ 30%) Year ended 2020-21 2019-20 2018-19 2017-18 2016-17 Profit (`) 2,75,000 3,00,000 2,60,000 2,80,000 2,20,000? for B Com 2025 is part of B Com preparation. The Question and answers have been prepared according to the B Com exam syllabus. Information about . From the following information, compute the value of Goodwill as per ‘Capitalisation of Average Profits method’ : (a) Capital employed : ` 15,00,000 (b) Normal rate of profit : 10% (c) Net profit before tax (Tax rate @ 30%) Year ended 2020-21 2019-20 2018-19 2017-18 2016-17 Profit (`) 2,75,000 3,00,000 2,60,000 2,80,000 2,20,000? covers all topics & solutions for B Com 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for . From the following information, compute the value of Goodwill as per ‘Capitalisation of Average Profits method’ : (a) Capital employed : ` 15,00,000 (b) Normal rate of profit : 10% (c) Net profit before tax (Tax rate @ 30%) Year ended 2020-21 2019-20 2018-19 2017-18 2016-17 Profit (`) 2,75,000 3,00,000 2,60,000 2,80,000 2,20,000?.
. From the following information, compute the value of Goodwill as per ‘Capitalisation of Average Profits method’ : (a) Capital employed : ` 15,00,000 (b) Normal rate of profit : 10% (c) Net profit before tax (Tax rate @ 30%) Year ended 2020-21 2019-20 2018-19 2017-18 2016-17 Profit (`) 2,75,000 3,00,000 2,60,000 2,80,000 2,20,000? for B Com 2025 is part of B Com preparation. The Question and answers have been prepared according to the B Com exam syllabus. Information about . From the following information, compute the value of Goodwill as per ‘Capitalisation of Average Profits method’ : (a) Capital employed : ` 15,00,000 (b) Normal rate of profit : 10% (c) Net profit before tax (Tax rate @ 30%) Year ended 2020-21 2019-20 2018-19 2017-18 2016-17 Profit (`) 2,75,000 3,00,000 2,60,000 2,80,000 2,20,000? covers all topics & solutions for B Com 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for . From the following information, compute the value of Goodwill as per ‘Capitalisation of Average Profits method’ : (a) Capital employed : ` 15,00,000 (b) Normal rate of profit : 10% (c) Net profit before tax (Tax rate @ 30%) Year ended 2020-21 2019-20 2018-19 2017-18 2016-17 Profit (`) 2,75,000 3,00,000 2,60,000 2,80,000 2,20,000?.
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