1. The firm’s average profit before charging partner’s remuneration was `. 25,000. Total investment of the partners in a firm was `. 80,000. Rate of return in similar business was 20%. Partner’s remuneration was `. 5,000. Goodwill to be valued at two year’s purchase of super profit. Find out value of goodwill. (5)
Average Profit = 25,000
F.M.P. = Average Profit - 25,000
Less: Remuneration- 5,000
F.M.P. 20,000
Capital Employed = 80,000
N.R.R. = 20%
Normal Profit = Capital employed ´ N.R.R.
100
= 80,000 ´ 20 = 16,000
100
Super Profit = F.M.P. – Normal Profit
= 20,000 – 16,000
= 4,000
Goodwill = Super Profit ´ No. of years purchased
= 4,000 ´ 2
= 8,000