The goodwill based on capitalization of average profit method is valued at Rs. 1,80,000. If Net Assets are Rs. 8,20,000 then find the capitalized value of average profits.
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Rs. 10,00,000
Under the capitalisation of average profits method, goodwill is the excess of the capitalised value of average profits over the net assets. So the capitalised value is net assets plus goodwill.
Goodwill = Capitalised value − Net assets
Capitalised value = Goodwill + Net assets
= Rs. 1,80,000 + Rs. 8,20,000 = Rs. 10,00,000
The book’s illustration works the other way round: it finds the capitalised value Rs. 10,00,000 from average profits and then the goodwill Rs. 1,80,000; this question gives the goodwill and asks for the capitalised value.
NCERT (2026-27 edition):
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