From the following information, calculate value of goodwill

 25 :-  From the following information, calculate value of goodwill of the firm by applying Capitalisation method
Total capital of the firm Rs 16,00,000
Normal rate of return 10%
Profit for the year Rs 2,00,000

Solution:-

Total capitalized value of the firm as per average profit
Total capitalized of the firm = Average profit/ Normal rate of return
                                           = 2,00,000 x 100/10
                                           = Rs 20,00,000

Calculation of Goodwill of the firm
Goodwill = Total capitalized value of the firm – Capital employed
               = 20,00,000 – 16,00,000
                = Rs 4,00,000