Answer to Question #234952 in Accounting for kannan

Question

Calculate goodwill, if it is to be calculate at 3years’ purchase of the super profit; The

firm started business with a capital of Rs.4,00,000. The normal rate of earning in this class of

business is 15%. The firm earned Rs.74,000 as profit during the year.

Answer 1

average profit= Rs 74000

normal profit$=400000\times 15/100=Rs60000$

super profit= average profit -normal profit=74000-60000=Rs14000

good will = super profit $\times$ no. of years purchase $=14000\times 3=Rs42000$