A business has earned average profits of ₹1,00,000 during the last few years and the normal rate of return in a similar business is 10%. Ascertain the value of goodwill by capitalisation of average profits method, given that the value of net assets of the business is ₹8,20,000.

₹1,80,000

The correct answer is option 3- ₹1,80,000.

Average profits = 1,00,000

Capitalised value of average profits = 1,00,000 X 100/10
                                                   = 10,00,000

Net assets of the business = 8,20,000

GOODWILL = Capitalised value of average profits - Net assets
                 = 10,00,000 - 8,20,000
                 = 1,80,000