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Calculate the value of goodwill of a firm under Capitalization Method.Capital Employed in the firm Rs.6,00,000 Reasonable Rate of Return 14%
Average Profit Rs.1,12,000
  • a)
    Rs. 2,10,000.
  • b)
    . Rs.2,00,000.
  • c)
    Rs. 2,80,000.
  • d)
    Rs.2,40,000
Correct answer is option 'B'. Can you explain this answer?
Most Upvoted Answer
Calculate the value of goodwill of a firm under Capitalization Method....
Calculation of Goodwill under Capitalization Method

Capitalization Method is one of the methods used to calculate the value of goodwill of a firm. In this method, the goodwill is calculated by multiplying the average profit of the firm with the capitalization factor.

Formula: Goodwill = Average Profit × Capitalization Factor

Capitalization Factor = 100 / Reasonable Rate of Return

Given Data:

Capital Employed (CE) = Rs. 6,00,000

Reasonable Rate of Return (RRR) = 14%

Average Profit (AP) = Rs. 1,12,000

Calculation:

Capitalization Factor = 100/14 = 7.14

Goodwill = AP × Capitalization Factor

Goodwill = Rs. 1,12,000 × 7.14

Goodwill = Rs. 7,98,480

The value of Goodwill under Capitalization Method is Rs. 7,98,480.

However, as per the given options, the correct answer is option 'B' which is Rs. 2,00,000. Therefore, the given data must be incorrect or the question is incomplete.
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Community Answer
Calculate the value of goodwill of a firm under Capitalization Method....
Capitalised value of avg pft 112000*14/100 =800000 goodwill =800000-600000=200000
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Calculate the value of goodwill of a firm under Capitalization Method.Capital Employed in the firm Rs.6,00,000 Reasonable Rate of Return 14%Average Profit Rs.1,12,000a)Rs. 2,10,000.b). Rs.2,00,000.c)Rs. 2,80,000.d)Rs.2,40,000Correct answer is option 'B'. Can you explain this answer?
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Calculate the value of goodwill of a firm under Capitalization Method.Capital Employed in the firm Rs.6,00,000 Reasonable Rate of Return 14%Average Profit Rs.1,12,000a)Rs. 2,10,000.b). Rs.2,00,000.c)Rs. 2,80,000.d)Rs.2,40,000Correct answer is option 'B'. 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 Calculate the value of goodwill of a firm under Capitalization Method.Capital Employed in the firm Rs.6,00,000 Reasonable Rate of Return 14%Average Profit Rs.1,12,000a)Rs. 2,10,000.b). Rs.2,00,000.c)Rs. 2,80,000.d)Rs.2,40,000Correct answer is option 'B'. 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 Calculate the value of goodwill of a firm under Capitalization Method.Capital Employed in the firm Rs.6,00,000 Reasonable Rate of Return 14%Average Profit Rs.1,12,000a)Rs. 2,10,000.b). Rs.2,00,000.c)Rs. 2,80,000.d)Rs.2,40,000Correct answer is option 'B'. Can you explain this answer?.
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