The net profit of a business, after providing for taxation, for the past five years are:...

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The net profit of a business, after providing for taxation, for the past five years are: 80,000; 85,000; * 92,000; 1,05,000 and 1,18,000. The capital employed in the business is 8,00,000. The normal rate of return expected in this type of business is 10%. It is expected that the company will be able to maintain the super profit for the next 5 years. Calculate the value of goodwill on the basis of: (a) 5 years' purchase of super profit method, (b) Annuity method, taking the present value of annuity of 1 for five years at 10% as 3.78 and (c) Capitalisation of super profit method. The net profit of a business, after providing for taxation, for the past five years are: 80,000; 85,000; * 92,000; 1,05,000 and 1,18,000. The capital employed in the business is 8,00,000. The normal rate of return expected in this type of business is 10%. It is expected that the company will be able to maintain the super profit for the next 5 years. Calculate the value of goodwill on the basis of: (a) 5 years' purchase of super profit method, (b) Annuity method, taking the present value of annuity of 1 for five years at 10% as 3.78 and (c) Capitalisation of super profit method.

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a The value of goodwill under the 5 years purchase of su... View the full answer