{"id":58211,"date":"2024-04-16T01:15:33","date_gmt":"2024-04-16T01:15:33","guid":{"rendered":"https:\/\/exam.pscnotes.com\/mcq\/?p=58211"},"modified":"2024-04-16T01:15:33","modified_gmt":"2024-04-16T01:15:33","slug":"average-profit-of-a-firm-is-rs-10000-firms-capital-is-rs-70000-and-normal-return-of-this-business-is-expected-at-10-by-capitalisation-method-goodwill-be","status":"publish","type":"post","link":"https:\/\/exam.pscnotes.com\/mcq\/average-profit-of-a-firm-is-rs-10000-firms-capital-is-rs-70000-and-normal-return-of-this-business-is-expected-at-10-by-capitalisation-method-goodwill-be\/","title":{"rendered":"Average profit of a firm is Rs. 10,000. Firm&#8217;s capital is Rs. 70,000 and normal return of this business is expected at 10%. By capitalisation method, Goodwill be"},"content":{"rendered":"<p>[amp_mcq option1=&#8221;Rs. 30,000&#8243; option2=&#8221;Rs. 60,000&#8243; option3=&#8221;Rs. 1,00,000&#8243; option4=&#8221;Rs. 1,70,000&#8243; correct=&#8221;option2&#8243;]<!--more--><\/p>\n<p>The correct answer is: B. Rs. 60,000<\/p>\n<p>Goodwill is the excess of the purchase price of a business over the fair value of its net assets. It is often referred to as the &#8220;goodwill and favorable reputation&#8221; of a business.<\/p>\n<p>The capitalization method of goodwill valuation is based on the assumption that the goodwill of a business is equal to the present value of the excess earnings of the business over the normal return on its capital.<\/p>\n<p>To calculate goodwill by the capitalization method, we need to know the following:<\/p>\n<ul>\n<li>The average profit of the business<\/li>\n<li>The firm&#8217;s capital<\/li>\n<li>The normal return of the business<\/li>\n<\/ul>\n<p>The average profit of the business is given as Rs. 10,000. The firm&#8217;s capital is given as Rs. 70,000. The normal return of the business is expected at 10%.<\/p>\n<p>The formula for calculating goodwill by the capitalization method is:<\/p>\n<p>Goodwill = Average profit * (1 + Normal return) \/ Normal return<\/p>\n<p>= Rs. 10,000 * (1 + 10%) \/ 10%<\/p>\n<p>= Rs. 60,000<\/p>\n<p>Therefore, the goodwill of the business is Rs. 60,000.<\/p>\n<p>Option A is incorrect because it is the value of the firm&#8217;s capital.<\/p>\n<p>Option C is incorrect because it is the value of the firm&#8217;s average profit.<\/p>\n<p>Option D is incorrect because it is the value of the firm&#8217;s normal return.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>[amp_mcq option1=&#8221;Rs. 30,000&#8243; option2=&#8221;Rs. 60,000&#8243; option3=&#8221;Rs. 1,00,000&#8243; option4=&#8221;Rs. 1,70,000&#8243; correct=&#8221;option2&#8243;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[85],"tags":[],"class_list":["post-58211","post","type-post","status-publish","format-standard","hentry","category-accounting","no-featured-image-padding"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v22.2 (Yoast SEO v23.3) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Average profit of a firm is Rs. 10,000. Firm&#039;s capital is Rs. 70,000 and normal return of this business is expected at 10%. By capitalisation method, Goodwill be<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/exam.pscnotes.com\/mcq\/average-profit-of-a-firm-is-rs-10000-firms-capital-is-rs-70000-and-normal-return-of-this-business-is-expected-at-10-by-capitalisation-method-goodwill-be\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Average profit of a firm is Rs. 10,000. Firm&#039;s capital is Rs. 70,000 and normal return of this business is expected at 10%. By capitalisation method, Goodwill be\" \/>\n<meta property=\"og:description\" content=\"[amp_mcq option1=&#8221;Rs. 30,000&#8243; option2=&#8221;Rs. 60,000&#8243; option3=&#8221;Rs. 1,00,000&#8243; option4=&#8221;Rs. 1,70,000&#8243; correct=&#8221;option2&#8243;]\" \/>\n<meta property=\"og:url\" content=\"https:\/\/exam.pscnotes.com\/mcq\/average-profit-of-a-firm-is-rs-10000-firms-capital-is-rs-70000-and-normal-return-of-this-business-is-expected-at-10-by-capitalisation-method-goodwill-be\/\" \/>\n<meta property=\"og:site_name\" content=\"MCQ and Quiz for Exams\" \/>\n<meta property=\"article:published_time\" content=\"2024-04-16T01:15:33+00:00\" \/>\n<meta name=\"author\" content=\"rawan239\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"rawan239\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"1 minute\" \/>\n<!-- \/ Yoast SEO Premium plugin. -->","yoast_head_json":{"title":"Average profit of a firm is Rs. 10,000. Firm's capital is Rs. 70,000 and normal return of this business is expected at 10%. By capitalisation method, Goodwill be","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/exam.pscnotes.com\/mcq\/average-profit-of-a-firm-is-rs-10000-firms-capital-is-rs-70000-and-normal-return-of-this-business-is-expected-at-10-by-capitalisation-method-goodwill-be\/","og_locale":"en_US","og_type":"article","og_title":"Average profit of a firm is Rs. 10,000. Firm's capital is Rs. 70,000 and normal return of this business is expected at 10%. By capitalisation method, Goodwill be","og_description":"[amp_mcq option1=&#8221;Rs. 30,000&#8243; option2=&#8221;Rs. 60,000&#8243; option3=&#8221;Rs. 1,00,000&#8243; option4=&#8221;Rs. 1,70,000&#8243; correct=&#8221;option2&#8243;]","og_url":"https:\/\/exam.pscnotes.com\/mcq\/average-profit-of-a-firm-is-rs-10000-firms-capital-is-rs-70000-and-normal-return-of-this-business-is-expected-at-10-by-capitalisation-method-goodwill-be\/","og_site_name":"MCQ and Quiz for Exams","article_published_time":"2024-04-16T01:15:33+00:00","author":"rawan239","twitter_card":"summary_large_image","twitter_misc":{"Written by":"rawan239","Est. reading time":"1 minute"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"WebPage","@id":"https:\/\/exam.pscnotes.com\/mcq\/average-profit-of-a-firm-is-rs-10000-firms-capital-is-rs-70000-and-normal-return-of-this-business-is-expected-at-10-by-capitalisation-method-goodwill-be\/","url":"https:\/\/exam.pscnotes.com\/mcq\/average-profit-of-a-firm-is-rs-10000-firms-capital-is-rs-70000-and-normal-return-of-this-business-is-expected-at-10-by-capitalisation-method-goodwill-be\/","name":"Average profit of a firm is Rs. 10,000. 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