CMA Final · Strategic Performance Management and Business Valuation · Business Valuation Methods and Approaches
Anand Ltd's net assets at fair value are ₹600 lakh. Its normal rate of return in the industry is 12% and its future maintainable profit is ₹90 lakh. Using the capitalisation of super profits method with super profits capitalised at the normal rate, goodwill is:
Normal profit is 12 percent of ₹600 lakh, or ₹72 lakh, so super profit is ₹18 lakh. Capitalising this at 12 percent gives goodwill of ₹150 lakh. The ₹750 lakh figure is the total business value, not goodwill.
- A₹100 lakh
- B₹150 lakhCorrect
- C₹750 lakh
- D₹50 lakh
Explanation
Normal profit = 12% × 600 = ₹72 lakh. Super profit = 90 − 72 = ₹18 lakh. Goodwill = 18/0.12 = ₹150 lakh. Check: 150 + 600 = 750 equals 90/0.12 capitalised value. The option ₹750 lakh is total value, not goodwill.
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