To calculate the value of goodwill at 3 years' purchase of super profit, you first need to determine the super profit, which is the excess profit earned over the normal rate of return on capital. In this case, the normal rate is 10%, and the profit is 40,000 on a capital of 300,000.
Step 1: Calculate the normal profit:
Normal Profit = Capital × Normal Rate
Normal Profit = 300,000 × 10% = 30,000
Step 2: Calculate the Super Profit:
Super Profit = Actual Profit - Normal Profit
Super Profit = 40,000 - 30,000 = 10,000
Step 3: Calculate the Value of Goodwill:
Value of Goodwill = Super Profit × Number of Years' Purchase
Value of Goodwill = 10,000 × 3
Value of Goodwill = 30,000
So, the value of goodwill at 3 years' purchase of the super profit is 30,000.
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Step-by-step explanation:
To calculate the value of goodwill at 3 years' purchase of super profit, you first need to determine the super profit, which is the excess profit earned over the normal rate of return on capital. In this case, the normal rate is 10%, and the profit is 40,000 on a capital of 300,000.
Step 1: Calculate the normal profit:
Normal Profit = Capital × Normal Rate
Normal Profit = 300,000 × 10% = 30,000
Step 2: Calculate the Super Profit:
Super Profit = Actual Profit - Normal Profit
Super Profit = 40,000 - 30,000 = 10,000
Step 3: Calculate the Value of Goodwill:
Value of Goodwill = Super Profit × Number of Years' Purchase
Value of Goodwill = 10,000 × 3
Value of Goodwill = 30,000
So, the value of goodwill at 3 years' purchase of the super profit is 30,000.