Question : Identify the correct order for calculating goodwill under Capitalisation of Average Profit Method: (i) Calculate capitalised value of the firm (ii) Ascertain the value of net assets, on the date of valuation of goodwill (iii) Calculate average profit earned (iv) Find the difference between capitalised value of the firm and net assets
Option 1: (i), (ii), (iii), (iv)
Option 2: (ii), (iii), (iv), (i)
Option 3: (iii), (i), (ii), (iv)
Option 4: (iv), (iii), (ii), (i)
Correct Answer: (iii), (i), (ii), (iv)
Solution : For calculating goodwill under Capitalisation of Average Profit Method: (iii) Calculate average profit earned (i) Calculate capitalised value of the firm (ii) Ascertain the value of net assets, on the date of valuation of goodwill (iv) Find the difference between capitalised value of the firm and net assets. Hence, the correct option is 3.
Question : A firm earned Rs. 60,000 as profit, the normal rate of return being 10%. Assets of the firm are Rs. 7,20,000 (excluding goodwill) and Liabilities are Rs. 2,40,000. The value of goodwill by Capitalisation of Average Profit Method is
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