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Problem 1.4 (capitalisation Method). Ascertain the value of goodwill of P.Co. Ltd. Carrying on business as retail traders from the following information according to Capitalisation
Problem 1.4 (capitalisation Method). Ascertain the value of goodwill of P.Co. Ltd. Carrying on business as retail traders from the following information according to Capitalisation method: BALANCE SHEET As on 31st December, 2015 $ I. Equity and Liabilities (1) Shareholders' Funds (a) Share Capital: 2,500 Shares of 100 each 2,50,000 (b) Reserves and Surplus: Surplus Account 56,650 (2) Current Liabilities Bank Overdraft 58,350 Sundry Creditors 90,500 Provision for Taxation 19,500 Total Equity and Liabilities 4,75,000 IL Assets (1) Non-current Assets Fixed Assets : Land & Building at Cost 1,10,000 Plant & Machinery at Cost less Depreciation 1,00,000 Intangible Asset : Goodwill 25,000 (2) Current Assets Stock at Cost 1,50,000 Book Debts less Provision for Doubtful Debts 90,000 Total Assets 4,75,000 The company commenced operations in 2011 with a paid up capital as aforesaid of $ 2,50,000. The profits earned, before providing for taxation, have been as: 2011 $ 61,000; 2012 $64,000; 2013 $ 71,500 ; 2014 $ 78,000 and 2015 $ 85,000. You may assume that income tax at the rate of 50% has been payable on these profits. The average dividend paid by the company for the four years is 10% which is taken as reasonable return expected on the capital invested in the business
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