Practice question

Question

Directions For Questions
Directions: Read the following case study and answer questions on the basis of the same.
Tony and Rony started a partnership firm, TR CDs to manufacture music CDs way back in 1990. Now since the music CDs are out of business, they plan to sell the business to one of the major content production houses in Mumbai. For the purpose of selling business, they reached to their accountant to calculate the goodwill and other financial advice. He suggested that since the CDs are very less in demand, their goodwill value will be hampered. Nonetheless, the framework for goodwill calculation was decided as follows
‘The goodwill be valued at 4 years’ purchase of super profits.’ The following financial information was obtained at the end of this transaction
• Assets ₹ 8,000
• Creditors ₹ 1,000
• Normal rate of return 10%
• Good will of the firm ₹1,000
How is good will calculated in the given case?