From the following information, calculate the value of goodwill by-(i) 3 years' purchase of actual average profit; and (ii) 10 years' purchase of superprofit : Average capital employed ₹ 21,00,000. Net trading profits of

Calculation of Actual Average Profits (or Future Maintainable Profit) Year Profit ₹ Weights Product ₹ I Year 3,40,000 1 3,40,000 II Year 3,75,000 2 7,50,000 III Year 4,00,000 - 15,000 3,85,000 3 11,55,000 IV Year 4,60,000 - 15,000 = 4,45,000 4 17,80,000 Total 10 40,25,000 Weight Average Profit 4,02,500 Less: Fair Remuneration of owner 75,000 Actual average profit 3,27,500 Normal Profit : \frac{\text{Average Capital Employed x Normal Rate of Return}}{100} = 21,00,000 \times \frac{15}{100} = \text{₹}315000 Super Profit: Actual Average Profit - Normal Profit = ₹3,27,500 - ₹3,15,000 = ₹12,500 Valuation of Goodwill: (i) 3 year's purchase of Actual Average Profit: Value of Goodwill = Actual Average Profit x No. of Year's Purchases ₹3,27,500 x 3 = ₹9,82,500 (ii) By 10 Year's purchases of super profit: ₹12,500 x 10 = ₹1,25,000