CA Final · Advanced Financial Management · Business Valuation
Mehta Foods Ltd has a replacement-cost balance sheet showing net identifiable assets of ₹60,00,000. Its average future maintainable profit after tax is ₹9,00,000. The normal rate of return in the industry is 12%. Using the capitalisation method for goodwill (goodwill = capitalised maintainable profit less net assets), what is the goodwill?
Goodwill is ₹15,00,000. Capitalising the maintainable profit of ₹9,00,000 at the 12% normal rate gives a business value of ₹75,00,000. Subtracting the net identifiable assets of ₹60,00,000 leaves ₹15,00,000 as goodwill.
- A₹15,00,000Correct
- B₹12,00,000
- C₹75,00,000
- D₹6,00,000
Explanation
Capitalised value of profit = 9,00,000/12% = 75,00,000. Goodwill = 75,00,000 - 60,00,000 = ₹15,00,000. The ₹75,00,000 option is the capitalised value itself, not goodwill.
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