A business has earned average profits of Rs. 1,00,000 during the last few years and the normal rate of return in similar business is 10%. Find out the value of Goodwill by (i) Capitalisation of super profit method and (ii) Super profit method if the goodwill is valued at 3 years purchase of super profit. The assets of the business were Rs. 10,00,000 and its external liabilities Rs. 1,80,000.

(i) Calculation of good will by capitalisation of super profit method:

* Average profit earned by the firm = Rs 1,00,000

 * Capital employed = Asset – Liabilities

= 10,00,000 – 1,80,000= 8,20,000

 * Normal profit = capital employed* normal rate of return

= 8,20,000* 10% = 82,000

 * Super Profit = Average profit earned – Normal profit

= 1,00,000- 82,000 = 18000

 * Good will = Capitalisation of super profit = Super profit * 100/ Normal rate of return

=18000*100/10 =Rs 1,80,000/-

(ii) Calculation of good will by super profit method:

Average profit earned by the firm = 1,00,000
Normal profit earned = capital employed * normal rate of return

Capital employed = asset – liabilities = 8,20,000
Normal profit = 820000* 10/100 =82,000

Super profit = average profit – normal profit
= 1,00,000 – 82,000 = 18,000

Goodwill valued at 3 years purchase of super profit = 18000* 3 = Rs 54000/-