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The average capital employed is 5,00,000. Profits for the last three years are 67,500, *74.750, and 82,500 respectively. Profit of last year has been arrived after writing off loss by fire 4,000. The firm has invested 1,00,000 in 9% Government securities at par in the beginning. Similar firms are earning @ 15% on capital employed. Calculate goodwill with?
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The average capital employed is 5,00,000. Profits for the last three y...
Calculation of Goodwill
Step 1: Calculate Average Profit
To calculate the goodwill, we need to first calculate the average profit of the last three years.
Average Profit = (67,500 + 74,750 + 82,500) / 3
Average Profit = 74,250
Step 2: Calculate Normal Profit
Next, we need to calculate the normal profit by multiplying the average capital employed with the rate of return of similar firms.
Normal Profit = 5,00,000 x 15%
Normal Profit = 75,000
Step 3: Calculate Super Profit
Super Profit is the difference between the average profit and normal profit.
Super Profit = Average Profit - Normal Profit
Super Profit = 74,250 - 75,000
Super Profit = -750
Step 4: Calculate Capitalization Value
Capitalization value is calculated by dividing the super profit by the rate of return of similar firms.
Capitalization Value = Super Profit / Rate of Return
Capitalization Value = -750 / 15%
Capitalization Value = - 5,000
Step 5: Calculate Goodwill
Goodwill is the difference between the capitalization value and the value of investments.
Goodwill = Capitalization Value - Value of Investments
Goodwill = - 5,000 - 1,00,000
Goodwill = - 1,05,000 (Negative value indicates that there is no goodwill in the business)
Explanation of Goodwill Calculation
Goodwill is an intangible asset that represents the reputation, brand value, and customer loyalty of a business. It is calculated by subtracting the value of tangible assets and liabilities from the total purchase price of a business. In this case, we have calculated the goodwill of an existing business.
To calculate the goodwill, we first need to calculate the average profit of the last three years. Then, we multiply the average capital employed with the rate of return of similar firms to get the normal profit. The difference between the average profit and normal profit is the super profit.
We then divide the super profit by the rate of return of similar firms to get the capitalization value. This value is subtracted from the value of investments to get the goodwill. If the value is negative, it indicates that there is no goodwill in the business.
Step 1: Calculate Average Profit
To calculate the goodwill, we need to first calculate the average profit of the last three years.
Average Profit = (67,500 + 74,750 + 82,500) / 3
Average Profit = 74,250
Step 2: Calculate Normal Profit
Next, we need to calculate the normal profit by multiplying the average capital employed with the rate of return of similar firms.
Normal Profit = 5,00,000 x 15%
Normal Profit = 75,000
Step 3: Calculate Super Profit
Super Profit is the difference between the average profit and normal profit.
Super Profit = Average Profit - Normal Profit
Super Profit = 74,250 - 75,000
Super Profit = -750
Step 4: Calculate Capitalization Value
Capitalization value is calculated by dividing the super profit by the rate of return of similar firms.
Capitalization Value = Super Profit / Rate of Return
Capitalization Value = -750 / 15%
Capitalization Value = - 5,000
Step 5: Calculate Goodwill
Goodwill is the difference between the capitalization value and the value of investments.
Goodwill = Capitalization Value - Value of Investments
Goodwill = - 5,000 - 1,00,000
Goodwill = - 1,05,000 (Negative value indicates that there is no goodwill in the business)
Explanation of Goodwill Calculation
Goodwill is an intangible asset that represents the reputation, brand value, and customer loyalty of a business. It is calculated by subtracting the value of tangible assets and liabilities from the total purchase price of a business. In this case, we have calculated the goodwill of an existing business.
To calculate the goodwill, we first need to calculate the average profit of the last three years. Then, we multiply the average capital employed with the rate of return of similar firms to get the normal profit. The difference between the average profit and normal profit is the super profit.
We then divide the super profit by the rate of return of similar firms to get the capitalization value. This value is subtracted from the value of investments to get the goodwill. If the value is negative, it indicates that there is no goodwill in the business.
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The average capital employed is 5,00,000. Profits for the last three years are 67,500, *74.750, and 82,500 respectively. Profit of last year has been arrived after writing off loss by fire 4,000. The firm has invested 1,00,000 in 9% Government securities at par in the beginning. Similar firms are earning @ 15% on capital employed. Calculate goodwill with?
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The average capital employed is 5,00,000. Profits for the last three years are 67,500, *74.750, and 82,500 respectively. Profit of last year has been arrived after writing off loss by fire 4,000. The firm has invested 1,00,000 in 9% Government securities at par in the beginning. Similar firms are earning @ 15% on capital employed. Calculate goodwill with? for B Com 2024 is part of B Com preparation. The Question and answers have been prepared according to the B Com exam syllabus. Information about The average capital employed is 5,00,000. Profits for the last three years are 67,500, *74.750, and 82,500 respectively. Profit of last year has been arrived after writing off loss by fire 4,000. The firm has invested 1,00,000 in 9% Government securities at par in the beginning. Similar firms are earning @ 15% on capital employed. Calculate goodwill with? covers all topics & solutions for B Com 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for The average capital employed is 5,00,000. Profits for the last three years are 67,500, *74.750, and 82,500 respectively. Profit of last year has been arrived after writing off loss by fire 4,000. The firm has invested 1,00,000 in 9% Government securities at par in the beginning. Similar firms are earning @ 15% on capital employed. Calculate goodwill with?.
The average capital employed is 5,00,000. Profits for the last three years are 67,500, *74.750, and 82,500 respectively. Profit of last year has been arrived after writing off loss by fire 4,000. The firm has invested 1,00,000 in 9% Government securities at par in the beginning. Similar firms are earning @ 15% on capital employed. Calculate goodwill with? for B Com 2024 is part of B Com preparation. The Question and answers have been prepared according to the B Com exam syllabus. Information about The average capital employed is 5,00,000. Profits for the last three years are 67,500, *74.750, and 82,500 respectively. Profit of last year has been arrived after writing off loss by fire 4,000. The firm has invested 1,00,000 in 9% Government securities at par in the beginning. Similar firms are earning @ 15% on capital employed. Calculate goodwill with? covers all topics & solutions for B Com 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for The average capital employed is 5,00,000. Profits for the last three years are 67,500, *74.750, and 82,500 respectively. Profit of last year has been arrived after writing off loss by fire 4,000. The firm has invested 1,00,000 in 9% Government securities at par in the beginning. Similar firms are earning @ 15% on capital employed. Calculate goodwill with?.
Solutions for The average capital employed is 5,00,000. Profits for the last three years are 67,500, *74.750, and 82,500 respectively. Profit of last year has been arrived after writing off loss by fire 4,000. The firm has invested 1,00,000 in 9% Government securities at par in the beginning. Similar firms are earning @ 15% on capital employed. Calculate goodwill with? in English & in Hindi are available as part of our courses for B Com.
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