The total capital employed in the company is ?8,00,000 a reasonable rate of return is 15%and the profit of the year is 12,00,000. The value of goodwill of the company as per thecapitalisation method will be

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First, calculate the normal profit based on the reasonable rate of return: 15% of 8,00,000 = 1,20,000. The actual profit is 12,00,000, so the super profit is 12,00,000 - 1,20,000 = 10,80,000. To find the value of goodwill using the capitalisation method, you capitalise the super profit at the reasonable rate of return: (10,80,000 / 15%) = 72,00,000.

The Total Capital Employed in the Company Is ?8,00,000 a Reasonable