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A firm earned profits of Rs.80,000, Rs.1,00,000, Rs.1,20,000 and Rs.1,20,000 and Rs.1,80,000 During 2010-11, 2011-12, 2012-13 and 2013-14 respectively. The firm has capital investment of Rs. 5,00,000. A fair rate of return on investment is 15% p.a. Calculate goodwill of the firm based on three?
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A firm earned profits of Rs.80,000, Rs.1,00,000, Rs.1,20,000 and Rs.1,...
Calculation of Goodwill
Given:
Profits earned during 2010-11 = Rs.80,000
Profits earned during 2011-12 = Rs.1,00,000
Profits earned during 2012-13 = Rs.1,20,000
Profits earned during 2013-14 = Rs.1,20,000
Profits earned during 2014-15 = Rs.1,80,000
Capital investment = Rs.5,00,000
Fair rate of return on investment = 15% p.a.
Step 1: Calculation of average profits
Average profits = Total profits earned / Number of years
= (80,000 + 1,00,000 + 1,20,000 + 1,20,000 + 1,80,000) / 5
= Rs.1,00,000
Step 2: Calculation of fair value of the firm
Fair value of the firm = Average profits / Fair rate of return on investment
= 1,00,000 / 0.15
= Rs.6,66,667
Step 3: Calculation of net assets
Net assets = Capital investment - Fair value of the firm
= 5,00,000 - 6,66,667
= Rs.1,66,667
Step 4: Calculation of Goodwill
Goodwill = Fair value of the firm - Net assets
= 6,66,667 - 1,66,667
= Rs.5,00,000
Explanation
Goodwill is an intangible asset that represents the value of a firm's reputation, brand, customer loyalty, and other intangible assets. It is calculated as the difference between the fair value of the firm and the net assets. In this question, we have calculated the goodwill of the firm based on three.
First, we calculated the average profits earned by the firm over the last five years. Then, we calculated the fair value of the firm by dividing the average profits by the fair rate of return on investment.
Next, we calculated the net assets of the firm by subtracting the fair value of the firm from the capital investment. Finally, we calculated the goodwill of the firm by subtracting the net assets from the fair value of the firm.
This calculation helps in determining the value of a firm's intangible assets and can be useful in various financial decisions such as mergers and acquisitions, valuation of the firm, and financial reporting.
Given:
Profits earned during 2010-11 = Rs.80,000
Profits earned during 2011-12 = Rs.1,00,000
Profits earned during 2012-13 = Rs.1,20,000
Profits earned during 2013-14 = Rs.1,20,000
Profits earned during 2014-15 = Rs.1,80,000
Capital investment = Rs.5,00,000
Fair rate of return on investment = 15% p.a.
Step 1: Calculation of average profits
Average profits = Total profits earned / Number of years
= (80,000 + 1,00,000 + 1,20,000 + 1,20,000 + 1,80,000) / 5
= Rs.1,00,000
Step 2: Calculation of fair value of the firm
Fair value of the firm = Average profits / Fair rate of return on investment
= 1,00,000 / 0.15
= Rs.6,66,667
Step 3: Calculation of net assets
Net assets = Capital investment - Fair value of the firm
= 5,00,000 - 6,66,667
= Rs.1,66,667
Step 4: Calculation of Goodwill
Goodwill = Fair value of the firm - Net assets
= 6,66,667 - 1,66,667
= Rs.5,00,000
Explanation
Goodwill is an intangible asset that represents the value of a firm's reputation, brand, customer loyalty, and other intangible assets. It is calculated as the difference between the fair value of the firm and the net assets. In this question, we have calculated the goodwill of the firm based on three.
First, we calculated the average profits earned by the firm over the last five years. Then, we calculated the fair value of the firm by dividing the average profits by the fair rate of return on investment.
Next, we calculated the net assets of the firm by subtracting the fair value of the firm from the capital investment. Finally, we calculated the goodwill of the firm by subtracting the net assets from the fair value of the firm.
This calculation helps in determining the value of a firm's intangible assets and can be useful in various financial decisions such as mergers and acquisitions, valuation of the firm, and financial reporting.
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A firm earned profits of Rs.80,000, Rs.1,00,000, Rs.1,20,000 and Rs.1,20,000 and Rs.1,80,000 During 2010-11, 2011-12, 2012-13 and 2013-14 respectively. The firm has capital investment of Rs. 5,00,000. A fair rate of return on investment is 15% p.a. Calculate goodwill of the firm based on three?
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A firm earned profits of Rs.80,000, Rs.1,00,000, Rs.1,20,000 and Rs.1,20,000 and Rs.1,80,000 During 2010-11, 2011-12, 2012-13 and 2013-14 respectively. The firm has capital investment of Rs. 5,00,000. A fair rate of return on investment is 15% p.a. Calculate goodwill of the firm based on three? 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 earned profits of Rs.80,000, Rs.1,00,000, Rs.1,20,000 and Rs.1,20,000 and Rs.1,80,000 During 2010-11, 2011-12, 2012-13 and 2013-14 respectively. The firm has capital investment of Rs. 5,00,000. A fair rate of return on investment is 15% p.a. Calculate goodwill of the firm based on three? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for A firm earned profits of Rs.80,000, Rs.1,00,000, Rs.1,20,000 and Rs.1,20,000 and Rs.1,80,000 During 2010-11, 2011-12, 2012-13 and 2013-14 respectively. The firm has capital investment of Rs. 5,00,000. A fair rate of return on investment is 15% p.a. Calculate goodwill of the firm based on three?.
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