A firm earned a profit of 40000 on the capital of 300,000. Normal rate of return is 10%.Calculate the value of good”wo points Income and Expenditure A/c with Profit and Loss A/c.(2)will at three years purchase of Super Profit
Question
A firm earned a profit of 40000 on the capital of 300,000. Normal rate of return is 10%.Calculate the value of good”wo points Income and Expenditure A/c with Profit and Loss A/c.(2)will at three years purchase of Super Profit
Solution
Sure, let's break down the calculation step by step:
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First, calculate the normal profit. The normal rate of return is 10% and the capital is 300,000. So, the normal profit = 10% of 300,000 = 30,000.
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Next, calculate the super profit. Super profit is the excess of actual profit over the normal profit. The firm earned a profit of 40,000. So, the super profit = Actual profit - Normal profit = 40,000 - 30,000 = 10,000.
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Finally, calculate the value of goodwill. Goodwill is calculated as the super profit multiplied by the number of years purchase. In this case, it's three years. So, the value of goodwill = Super profit * Number of years purchase = 10,000 * 3 = 30,000.
So, the value of goodwill at three years purchase of Super Profit is 30,000.
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