1. The goodwill of a firm is to be worked out at three years’ purchase of the average profits of the last five years which are as follows:
`{:(Year,Profits(Loss)(Rs)),(2012,10000),(2013,15000),(2014,4000),(2015,(5000)),(2016,6000):}`
2. The capital employed of the firm is Rs. 1,00,000 and normal rate of return is 8%, the average profits for last 5 years are Rs. 12,000 and goodwill is to be worked out at 3 years’ purchase of super profits,
3. Rama Brothers earn an average profit of Rs. 30,000 with a capital of Rs. 2,00,000. The normal rate of return in the business is 10%. Using capitalisation of super profits method work out the value the goodwill of the firm.

Explanation

1. Total Profit = Rs. `10,000 +Rs. 15,000+ Rs. 4,000+ Rs. 6,000 - Rs. 5,000 = Rs. 30,000`
Average Profits = Rs, `30.000//5 = Rs. 6,000`
Goodwill = Average Profits `xx 3= Rs. 6,000 xx 3 = Rs. 18,000`
2. Average Profit = Rs. 12,000
Normal Profit = Rs. `1,00,000 xx (8)/(100) = Rs. 8,000`
Super Profit = Average Profit - Normal profit = Rs. `12,000 - Rs. 8,000`
= Rs. 4,000
Goodwill=Super Profit `xx3 = Rs. 4,000 xx 3 = Rs. 12,000`
Super Profit = Average Profit - Normal Profit = Rs, `30.000 - Rs, 20,000 = Rs. 10,000`
Goodwill = Super Profit `xx 100`/Normal Rate of Return `= 10.000 xx 100//10 = Rs. 1,00,000`.