The net profits earned during the last 5 years of XYZ Ltd. was (in lacs) 42, 47, 45, 39 and 47 respectively on the capital employed during all the period was ₹ 4 Crores. Market peers in the said industry expect 10% retur

CS Professional · Corporate Restructuring, Valuation and Insolvency · PYQS · December 2017
The net profits earned during the last 5 years of XYZ Ltd. was (in lacs) 42, 47, 45, 39 and 47 respectively on the capital employed during all the period was ₹ 4 Crores. Market peers in the said industry expect 10% return of capital employed. You are required to calculate the goodwill of XYZ Ltd. using: Capitalization of Average Profit Method and Capitalization of Super Profit Method.

Answer & Explanation:

Capitalisation of Average Profit Method (₹ in lakh) Average Profits for 5 years: (42+47+45+39+47)/5 = ₹ 44 Capitalisation of Super Profit Method Average profits as calculated above = ₹ 44,00,000 Less: 10% of the capital employed i.e. 10% of ₹ 4 crore = ₹ 40,00,000 Hence, super profits = ₹ 4,00,000 Valuation of goodwill on Average Profit Method is ₹ 44 lakh Valuation of goodwill on Super Profit method is ₹ 4 lakh

Topics: Valuation

Open in Interactive Practice Hub · Full Practice Hub · Chapter Weightage · More in this subject

Related Questions in this Topic