Model: Capitalization of super profits Compute goodwill in each of the following cases: The goodwill of a company is estimated at 3 years’ purchase of the average profits of the last 5 years which are:
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2. The capital employed is Rs.3,00,000 and normal rate of return is 10%, the average profit for last 5 years is Rs.50,000 and goodwill is estimated at 3 years’ purchase price of super profits.
3. Fantastic Ltd. earn a net profit of Rs.0,000 with a capital of Rs.5,00,000. The normal rate of return in the business is 10%. Compute the value of goodwill by applying capitalization of super profits method.