Finance Numericals

  Valuation of Goodwill by Capitalization method: Capitalization by average profit: Goodwill = Capitalized average profit method- capital employed Capitalized average profit method = Average profit*100/normal rate of return Average profit = total profit /number of years Capital employed = Total assets (excluding goodwill) – Outside liabilities Or Capital employed = Capital +Reserves and Surplus Capitalization by super profit method: Goodwill = Super profit * 100/normal rate of return Super profit = Average profit – normal profit Normal profit = Capital employed *normal rate/100 Example: Find out the value of goodwill with the help of given information using capitalization average profit method: ·          Total assets = Rs. 56,000 ·          Average profit = Rs. 12,000 ·          Normal rate of return = 6% per annum ·          Outside liabilities = Rs.20,000 Solution: Capital employed = 56,000- 20,000 = Rs. 36,000 Capitalization of average profit m