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A firm earns a profit of rupees 30000 per year in the same business 10% return is generally accepted the total asset of the firm are 4 lakh the value of other liability is 90000 find out the value of goodwill?
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A firm earns a profit of rupees 30000 per year in the same business 10...
Calculation of Goodwill
Step 1: Calculate the Average Profit
To calculate the value of goodwill, we first need to calculate the average profit of the firm. The given profit is Rs. 30,000 per year.
Average Profit = Total Profit / Number of Years
Average Profit = Rs. 30,000 / 1 (as the given profit is for one year)
Average Profit = Rs. 30,000
Step 2: Calculate the Normal Rate of Return
The normal rate of return is generally accepted as 10% in the industry.
Normal Rate of Return = Total Assets × Normal Rate of Return
Normal Rate of Return = Rs. 4,00,000 × 10% = Rs. 40,000
Step 3: Calculate the Super Profit
The super profit is calculated by subtracting the normal profit from the average profit.
Super Profit = Average Profit – Normal Profit
Super Profit = Rs. 30,000 – Rs. 40,000 = Rs. -10,000
Since the super profit is negative, it means that the firm is not earning enough to meet the normal expectations of the industry. In such cases, the value of goodwill is considered zero.
Therefore, the value of goodwill in this case is zero.
Explanation
Goodwill represents the reputation and brand value of a business. It is an intangible asset that is built over time based on factors such as customer loyalty, brand recognition, and market share. Goodwill is calculated as the excess of the average profit of a firm over the normal profit expected in the industry.
In this case, the firm is earning a profit of Rs. 30,000 per year. However, the normal rate of return expected in the industry is Rs. 40,000. This means that the firm's profit is lower than the expected profit, resulting in a negative super profit.
When the super profit is negative, it indicates that the firm is not earning enough to meet the industry's normal expectations. In such cases, the value of goodwill is considered zero.
Therefore, the value of goodwill for this firm is zero.
Step 1: Calculate the Average Profit
To calculate the value of goodwill, we first need to calculate the average profit of the firm. The given profit is Rs. 30,000 per year.
Average Profit = Total Profit / Number of Years
Average Profit = Rs. 30,000 / 1 (as the given profit is for one year)
Average Profit = Rs. 30,000
Step 2: Calculate the Normal Rate of Return
The normal rate of return is generally accepted as 10% in the industry.
Normal Rate of Return = Total Assets × Normal Rate of Return
Normal Rate of Return = Rs. 4,00,000 × 10% = Rs. 40,000
Step 3: Calculate the Super Profit
The super profit is calculated by subtracting the normal profit from the average profit.
Super Profit = Average Profit – Normal Profit
Super Profit = Rs. 30,000 – Rs. 40,000 = Rs. -10,000
Since the super profit is negative, it means that the firm is not earning enough to meet the normal expectations of the industry. In such cases, the value of goodwill is considered zero.
Therefore, the value of goodwill in this case is zero.
Explanation
Goodwill represents the reputation and brand value of a business. It is an intangible asset that is built over time based on factors such as customer loyalty, brand recognition, and market share. Goodwill is calculated as the excess of the average profit of a firm over the normal profit expected in the industry.
In this case, the firm is earning a profit of Rs. 30,000 per year. However, the normal rate of return expected in the industry is Rs. 40,000. This means that the firm's profit is lower than the expected profit, resulting in a negative super profit.
When the super profit is negative, it indicates that the firm is not earning enough to meet the industry's normal expectations. In such cases, the value of goodwill is considered zero.
Therefore, the value of goodwill for this firm is zero.
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A firm earns a profit of rupees 30000 per year in the same business 10% return is generally accepted the total asset of the firm are 4 lakh the value of other liability is 90000 find out the value of goodwill?
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A firm earns a profit of rupees 30000 per year in the same business 10% return is generally accepted the total asset of the firm are 4 lakh the value of other liability is 90000 find out the value of goodwill? for Class 12 2024 is part of Class 12 preparation. The Question and answers have been prepared according to the Class 12 exam syllabus. Information about A firm earns a profit of rupees 30000 per year in the same business 10% return is generally accepted the total asset of the firm are 4 lakh the value of other liability is 90000 find out the value of goodwill? covers all topics & solutions for Class 12 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for A firm earns a profit of rupees 30000 per year in the same business 10% return is generally accepted the total asset of the firm are 4 lakh the value of other liability is 90000 find out the value of goodwill?.
A firm earns a profit of rupees 30000 per year in the same business 10% return is generally accepted the total asset of the firm are 4 lakh the value of other liability is 90000 find out the value of goodwill? for Class 12 2024 is part of Class 12 preparation. The Question and answers have been prepared according to the Class 12 exam syllabus. Information about A firm earns a profit of rupees 30000 per year in the same business 10% return is generally accepted the total asset of the firm are 4 lakh the value of other liability is 90000 find out the value of goodwill? covers all topics & solutions for Class 12 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for A firm earns a profit of rupees 30000 per year in the same business 10% return is generally accepted the total asset of the firm are 4 lakh the value of other liability is 90000 find out the value of goodwill?.
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