Model: Capital employed and super profits The following is the balance sheet of Raj Co Ltd. as on 31 March 2010:
|
Liabilities |
Assets |
|
|
|
Paid-up Capital: |
Goodwill at cost |
50,000 |
|
|
50,000 Shares of Rs.10 Each Fully Pad |
5,00,000 |
Land & Buildings at Cost |
2,50,000 |
|
Capital Reserve |
30,000 |
(Less Depreciation) |
|
|
Sundry Creditors |
1,00,000 |
Plant & Machinery at Cost (Less |
2,00,000 |
|
Provision for Taxation |
70,000 |
Depreciation) |
|
|
P&L A/c |
50,000 |
Stock at Cost |
1,50,000 |
|
Debtors: 1,00,000 |
|||
|
Less: Provision |
|||
|
for Bad Debts 5,000 |
95,000 |
||
|
Cash at Bank |
5,000 |
||
|
7,50,000 |
7,50,000 |
You are asked to value the goodwill of Raj Co Ltd. on the basis of 5 years’ purchase of super profits, for which the following information is supplied:
- Adequate provisions have been made in the accounts for income tax and depreciation.
- The rate of income tax may be taken at 50%.
- The average rate of dividend by the company for the past 5 years was 15%.
- The reasonable return on capital invested in the class of business done by the company is 12%.