Practicing Success
A firm had ₹5,00,000 capital employed and profits earned during last five years were: ₹90,000-2015, ₹30,000-2016, ₹20,000 (loss)-2017, ₹80,000-2018, ₹90,000-2019. What will be value of goodwill based on 3 years' purchase of super profits of business, given that normal rate of return is 10% ? |
₹ 36,000 ₹ 12,000 ₹ 22,500 ₹ 26,500 |
₹ 12,000 |
The correct answer is Option 2 - ₹ 12,000. Average profit = Total profits/ no of years Total profits = (profit of 2015 + profit of 2016 - loss of 2017 + profit of 2018 + profit of 2019)/5 Normal profit = Capital employed x Rate of return/100 Super profit = Average profit - normal profit Goodwill = Super profit x No of years purchase |