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% ?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → ₹12,000
Total profit of five years = 90,000 + 30,000 − 20,000 + 80,000 + 90,000 = ₹2,70,000
Average profit = 2,70,000 / 5 = ₹54,000
Normal profit = ₹5,00,000 × 10% = ₹50,000
Super profit = 54,000 − 50,000 = ₹4,000
Goodwill = ₹4,000 × 3 = ₹12,000
The loss of 2017 is deducted, not ignored, while averaging.
NCERT (2026-27 edition):
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