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Capital emplpyed in a business rs 300000 profit are 900000 normal rate of return 15% the amount goodwill as per as capitalisation method answer?
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Capital emplpyed in a business rs 300000 profit are 900000 normal rate...
Understanding Goodwill Calculation
Goodwill represents the value of a business's brand, customer relations, and other intangible assets beyond its physical assets. The capitalization method is commonly used to assess goodwill based on the profits a business generates.
Given Data
- Capital Employed: Rs 300,000
- Profit: Rs 900,000
- Normal Rate of Return: 15%
Step 1: Calculate Normal Profit
To find the normal profit, use the formula:
- Normal Profit = Capital Employed × Normal Rate of Return
- Normal Profit = 300,000 × 15% = Rs 45,000
Step 2: Calculate Super Profit
Super profit is the excess profit over the normal profit:
- Super Profit = Actual Profit - Normal Profit
- Super Profit = 900,000 - 45,000 = Rs 855,000
Step 3: Calculate Goodwill
Using the capitalization method, goodwill can be calculated by capitalizing the super profit. The formula is:
- Goodwill = Super Profit / Normal Rate of Return
- Goodwill = 855,000 / 15%
- Goodwill = Rs 5,700,000
Conclusion
The calculated goodwill for the business, using the capitalization method, is Rs 5,700,000. This figure reflects the intangible value of the business, which significantly exceeds the tangible assets. Understanding such calculations is crucial for evaluating a business's worth in various financial contexts.
Goodwill represents the value of a business's brand, customer relations, and other intangible assets beyond its physical assets. The capitalization method is commonly used to assess goodwill based on the profits a business generates.
Given Data
- Capital Employed: Rs 300,000
- Profit: Rs 900,000
- Normal Rate of Return: 15%
Step 1: Calculate Normal Profit
To find the normal profit, use the formula:
- Normal Profit = Capital Employed × Normal Rate of Return
- Normal Profit = 300,000 × 15% = Rs 45,000
Step 2: Calculate Super Profit
Super profit is the excess profit over the normal profit:
- Super Profit = Actual Profit - Normal Profit
- Super Profit = 900,000 - 45,000 = Rs 855,000
Step 3: Calculate Goodwill
Using the capitalization method, goodwill can be calculated by capitalizing the super profit. The formula is:
- Goodwill = Super Profit / Normal Rate of Return
- Goodwill = 855,000 / 15%
- Goodwill = Rs 5,700,000
Conclusion
The calculated goodwill for the business, using the capitalization method, is Rs 5,700,000. This figure reflects the intangible value of the business, which significantly exceeds the tangible assets. Understanding such calculations is crucial for evaluating a business's worth in various financial contexts.
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Capital emplpyed in a business rs 300000 profit are 900000 normal rate of return 15% the amount goodwill as per as capitalisation method answer?
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Capital emplpyed in a business rs 300000 profit are 900000 normal rate of return 15% the amount goodwill as per as capitalisation method answer? for UPSC 2024 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about Capital emplpyed in a business rs 300000 profit are 900000 normal rate of return 15% the amount goodwill as per as capitalisation method answer? covers all topics & solutions for UPSC 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Capital emplpyed in a business rs 300000 profit are 900000 normal rate of return 15% the amount goodwill as per as capitalisation method answer?.
Capital emplpyed in a business rs 300000 profit are 900000 normal rate of return 15% the amount goodwill as per as capitalisation method answer? for UPSC 2024 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about Capital emplpyed in a business rs 300000 profit are 900000 normal rate of return 15% the amount goodwill as per as capitalisation method answer? covers all topics & solutions for UPSC 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Capital emplpyed in a business rs 300000 profit are 900000 normal rate of return 15% the amount goodwill as per as capitalisation method answer?.
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