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Question -

The books of Ram and Bharat showed that the capital employed on 31.12.2016 was ₹. 5,00,000 and the profits for the last 5 years : 2015 ₹. 40,000; 2014 ₹. 50,000; 2013 ₹. 55,000; 2012 ₹. 70,000 and 2011 ₹. 85,000. Calculate the value of goodwill on the basis of 3 years purchase of the average super profits of the last 5 years assuming that the normal rate of return is 10%?



Answer -



Year

Profit

2015

40,000

2014

50,000

2013

55,000

2012

70,000

2011

85,000

Sum of 5 years profit

3,00,000

Average Super Profit = Average Actual Profit – Normal Profit
= 60,000 – 50,000
= ₹ 10,000
 
Goodwill = Average Super Profit × Number of year purchase
= 10,000 × 3
= ₹ 30,000

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