Capital employed in a business is Rs. 1,00,000. The normal rate of return on this type of business carried out is 10%. The firm has earned profits of Rs. 30,000; Rs. 36,000 and Rs. 42,000 in the last three years. Using capitalisation of super profits method, calculate the value of the goodwill of the firm.
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Rs. 2,60,000
Under the capitalisation of super profits method, goodwill is the capital that would be needed to earn the super profit at the normal rate of return: Goodwill = Super profit × 100 / Normal rate of return.
Average profit = (Rs. 30,000 + Rs. 36,000 + Rs. 42,000) / 3 = Rs. 36,000
Normal profit = Rs. 1,00,000 × 10% = Rs. 10,000
Super profit = Rs. 36,000 − Rs. 10,000 = Rs. 26,000
Goodwill = Rs. 26,000 × 100/10 = Rs. 2,60,000
Note: The NCERT book (2026-27) prints the formula as “Goodwill = Super Profits × 100 Normal Rate of Return”, leaving out the division sign. It should read Super Profits × 100/Normal Rate of Return, as used in the working above.
NCERT (2026-27 edition):
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