A business has earned average profits of Rs. 1,00,000 during the last few years and the normal rate of return for a similar business is 10%. Ascertain the value of goodwill by capitalization of average profits method, given that the value of net assets of the business is Rs. 8,20,000.
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Rs.1,80,000
Under the capitalisation of average profits method, goodwill = capitalised value of average profits − net assets.
Capitalised value = Rs. 1,00,000 × 100/10 = Rs. 10,00,000
Net assets = Rs. 8,20,000
Goodwill = Rs. 10,00,000 − Rs. 8,20,000 = Rs. 1,80,000
NCERT (2026-27 edition):
|
