30 :- A business has earned an average profit of Rs 4,00,000 during the last few years and the normal rate of return in a similar business is 10%. Find the value of goodwill by:
(i) Capitalisation of Super Profit Method, and
(ii) Super Profit Method if the goodwill is valued at 3 years’ purchase of super profits.
Assets of the business were Rs 40,00,000 and its external liabilities Rs 7,20,000.
Solution:-
CASE 1:
Calculation of Capital employed
Capital employed = Assets – external liabilities
= 40,00,000 – 7,20,000
= Rs 32,80,000
Calculation of Normal profit
Normal profit = Capital employed x Normal rate of return
= 32,80,000 x 10%
= Rs 3,28,000
Calculation of Super profit
Super profit = Average profit – Normal profit
= 4,00,000 – 3,28,000
= Rs 72,000
Calculation of Goodwill by capitalization of super profit
Goodwill of the firm = Super profit/Normal rate of return
= 72,000 x 100/10
= Rs 7,20,000
CASE 2:
Calculation of Goodwill by super profit method
Goodwill = Super profit x No. of years purchased
= 72,000 x 3
= Rs 2,16,000