Multiple Choice Questions on A firm earns Rs1 00 000 The normal rate of return is 10 The assets of the company amounted to Rs11 0........... for Commerce 12th Preparation

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Multiple Choice Questions

A firm earns Rs1 00 000 The normal rate of return is 10 The assets of the company amounted to Rs11 0...........

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    A firm earns Rs1,00,000. The normal rate of return is 10%. The assets of the company amounted to Rs11,00,000 and liabilities to Rs1,00,000. Value of goodwill by the capitalization of average actual profit will be

    Rs 2,00,000

    Incorrect Answer

    Rs 10,000

    Incorrect Answer

    Rs 5,000

    Incorrect Answer

    Nil

    Correct Answer
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    Explanation:

    To value goodwill by the capitalization of average actual profit, you follow these steps:

    Capitalized value of profits: Actual Profit / Normal Rate of Return =1,00,000/10% = 10,00,000 

    Net Assets = Assets - Liabilities = 11,00,000 - 1,00,000 = 10,00,000

    Goodwill = Capitalised value - Net assets = 10,00,000 - 10,00,000 = Nil

    .

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    By: santosh
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