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A firm earns a profit of Rs. 3,00,000 per year. In the same type of business, a 10% return is generally expected. The total assets of the firm are Rs. 34,00,000. The value of other liabilities are Rs. 12,00,000. Find out the Value of Goodwill according to capitalisation method.?
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A firm earns a profit of Rs. 3,00,000 per year. In the same type of bu...
**Value of Goodwill according to the Capitalisation Method**
The value of goodwill can be determined using the capitalisation method, which involves calculating the value of the firm's goodwill based on its profit and the expected rate of return in the industry.
**Given information:**
- Profit earned by the firm per year: Rs. 3,00,000
- Expected rate of return in the industry: 10%
- Total assets of the firm: Rs. 34,00,000
- Value of other liabilities: Rs. 12,00,000
**Step 1: Calculate the Super Profit**
Super profit is the excess profit earned by a firm over and above the expected rate of return in the industry. It is calculated by subtracting the expected return from the actual profit.
Super Profit = Profit - (Total Assets × Expected Rate of Return)
In this case, the expected rate of return is 10% and the total assets of the firm are Rs. 34,00,000. Therefore,
Super Profit = Rs. 3,00,000 - (Rs. 34,00,000 × 0.10)
= Rs. 3,00,000 - Rs. 3,40,000
= -Rs. 40,000
Since the super profit is negative, it indicates that the firm is not earning excess profit over the expected rate of return. In this scenario, the value of goodwill will be zero.
**Conclusion**
According to the capitalisation method, the value of goodwill for the given firm is zero. This means that the firm is not earning any excess profit above the expected rate of return in the industry. Goodwill represents the reputation and brand value of a firm, and it is only considered as an intangible asset when there is a super profit. In this case, since the super profit is negative, there is no value assigned to goodwill.
The value of goodwill can be determined using the capitalisation method, which involves calculating the value of the firm's goodwill based on its profit and the expected rate of return in the industry.
**Given information:**
- Profit earned by the firm per year: Rs. 3,00,000
- Expected rate of return in the industry: 10%
- Total assets of the firm: Rs. 34,00,000
- Value of other liabilities: Rs. 12,00,000
**Step 1: Calculate the Super Profit**
Super profit is the excess profit earned by a firm over and above the expected rate of return in the industry. It is calculated by subtracting the expected return from the actual profit.
Super Profit = Profit - (Total Assets × Expected Rate of Return)
In this case, the expected rate of return is 10% and the total assets of the firm are Rs. 34,00,000. Therefore,
Super Profit = Rs. 3,00,000 - (Rs. 34,00,000 × 0.10)
= Rs. 3,00,000 - Rs. 3,40,000
= -Rs. 40,000
Since the super profit is negative, it indicates that the firm is not earning excess profit over the expected rate of return. In this scenario, the value of goodwill will be zero.
**Conclusion**
According to the capitalisation method, the value of goodwill for the given firm is zero. This means that the firm is not earning any excess profit above the expected rate of return in the industry. Goodwill represents the reputation and brand value of a firm, and it is only considered as an intangible asset when there is a super profit. In this case, since the super profit is negative, there is no value assigned to goodwill.
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A firm earns a profit of Rs. 3,00,000 per year. In the same type of business, a 10% return is generally expected. The total assets of the firm are Rs. 34,00,000. The value of other liabilities are Rs. 12,00,000. Find out the Value of Goodwill according to capitalisation method.?
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A firm earns a profit of Rs. 3,00,000 per year. In the same type of business, a 10% return is generally expected. The total assets of the firm are Rs. 34,00,000. The value of other liabilities are Rs. 12,00,000. Find out the Value of Goodwill according to capitalisation method.? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about A firm earns a profit of Rs. 3,00,000 per year. In the same type of business, a 10% return is generally expected. The total assets of the firm are Rs. 34,00,000. The value of other liabilities are Rs. 12,00,000. Find out the Value of Goodwill according to capitalisation method.? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for A firm earns a profit of Rs. 3,00,000 per year. In the same type of business, a 10% return is generally expected. The total assets of the firm are Rs. 34,00,000. The value of other liabilities are Rs. 12,00,000. Find out the Value of Goodwill according to capitalisation method.?.
A firm earns a profit of Rs. 3,00,000 per year. In the same type of business, a 10% return is generally expected. The total assets of the firm are Rs. 34,00,000. The value of other liabilities are Rs. 12,00,000. Find out the Value of Goodwill according to capitalisation method.? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about A firm earns a profit of Rs. 3,00,000 per year. In the same type of business, a 10% return is generally expected. The total assets of the firm are Rs. 34,00,000. The value of other liabilities are Rs. 12,00,000. Find out the Value of Goodwill according to capitalisation method.? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for A firm earns a profit of Rs. 3,00,000 per year. In the same type of business, a 10% return is generally expected. The total assets of the firm are Rs. 34,00,000. The value of other liabilities are Rs. 12,00,000. Find out the Value of Goodwill according to capitalisation method.?.
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