Model: Capital employed and super profits The following is the balance sheet of Raj Co Ltd. as on 31 March 2010:
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Goodwill at cost
50,000 Shares of Rs.10 Each Fully Pad
Land & Buildings at Cost
Plant & Machinery at Cost (Less
Provision for Taxation
Stock at Cost
for Bad Debts 5,000
Cash at Bank
You are asked to value the goodwill of Raj Co Ltd. on the basis of 5 years’ purchase of super profits, for which the following information is supplied: Adequate provisions have been made in the accounts for income tax and depreciation. The rate of income tax may be taken at 50%. The average rate of dividend by the company for the past 5 years was 15%. The reasonable return on capital invested in the class of business done by the company is 12%.