The following information given below: (i) Total Assets - 10,00,000 (ii) External Liabilities - 1,80,000 (iii) Normal Rate of Return10% (iv) Average…
CA Foundation · Accounting · RTP · January 2025
The following information given below: (i) Total Assets - 10,00,000 (ii) External Liabilities - 1,80,000 (iii) Normal Rate of Return10% (iv) Average Net Profit of last five years - 1,00,000 You are required to calculate goodwill by applying: (i) Capitalization Method and (ii)3 year’s purchase of super profits.
Suggested Answer and Working Notes:
Goodwill as per Capitalization Method: (i) Capital Employed (Net Assets) = Total Assets – External Liabilities = 10,00,000 - 1,80,000 = 8,20,000 Normal Profit =10% of 8,20,000 = 82,000 Super Profit = Average Profit – Normal Profit = 1,00,000 - 82,000 = 18,000 Goodwill = Super Profit x 100/Normal rate of Return = 18,000 X 100/10= 1,80,000 (ii) Goodwill as per3 year’s purchase of super profits: Goodwill = Super Profit x Number of Year’s purchased = 18,000 x 3 = 54,000
Topics: Treatment of Goodwill in Partnership Accounts
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