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Find the goodwill of the firm using capitalization method from the following information:
Total Capital Employed in the firm Rs. 8,00,000
Reasonable Rate of Return 15%
Profits from the year Rs. 12,00,000 
  • a)
    Rs. 82,00,000
  • b)
    Rs. 12,00,000
  • c)
    Rs. 72,00,000
  • d)
    Rs. 42,00,000
Correct answer is option 'C'. Can you explain this answer?
Verified Answer
Find the goodwill of the firm using capitalization method from the fol...
goodwill = average profit /normal rate of return x 100 - capital employed 

= 1200000 /15 x 100 - 80,00,000

= 72,00,000
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Find the goodwill of the firm using capitalization method from the fol...
Goodwill using Capitalization Method

Total Capital Employed in the firm = Rs. 8,00,000
Reasonable Rate of Return = 15%
Profits from the year = Rs. 12,00,000

To calculate the goodwill of the firm using the capitalization method, we need to follow the below steps:

Step 1: Calculate the Super Profits

Super profits = Actual profits - Normal profits

Normal profits = Total Capital Employed x Reasonable Rate of Return
= Rs. 8,00,000 x 15%
= Rs. 1,20,000

Super profits = Rs. 12,00,000 - Rs. 1,20,000 = Rs. 10,80,000

Step 2: Capitalize the Super Profits

Goodwill = Super Profits / Capitalization Rate

Capitalization Rate = 100 / Reasonable Rate of Return
= 100 / 15%
= 6.67

Goodwill = Rs. 10,80,000 / 6.67
= Rs. 72,00,000

Therefore, the goodwill of the firm using the capitalization method is Rs. 72,00,000.
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Find the goodwill of the firm using capitalization method from the fol...
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Find the goodwill of the firm using capitalization method from the following information:Total Capital Employed in the firm Rs. 8,00,000Reasonable Rate of Return 15%Profits from the year Rs. 12,00,000a)Rs. 82,00,000b)Rs. 12,00,000c)Rs. 72,00,000d)Rs. 42,00,000Correct answer is option 'C'. Can you explain this answer?
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Find the goodwill of the firm using capitalization method from the following information:Total Capital Employed in the firm Rs. 8,00,000Reasonable Rate of Return 15%Profits from the year Rs. 12,00,000a)Rs. 82,00,000b)Rs. 12,00,000c)Rs. 72,00,000d)Rs. 42,00,000Correct answer is option 'C'. Can you explain this answer? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about Find the goodwill of the firm using capitalization method from the following information:Total Capital Employed in the firm Rs. 8,00,000Reasonable Rate of Return 15%Profits from the year Rs. 12,00,000a)Rs. 82,00,000b)Rs. 12,00,000c)Rs. 72,00,000d)Rs. 42,00,000Correct answer is option 'C'. Can you explain this answer? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Find the goodwill of the firm using capitalization method from the following information:Total Capital Employed in the firm Rs. 8,00,000Reasonable Rate of Return 15%Profits from the year Rs. 12,00,000a)Rs. 82,00,000b)Rs. 12,00,000c)Rs. 72,00,000d)Rs. 42,00,000Correct answer is option 'C'. Can you explain this answer?.
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