If Average Capital Employed in a firm is ₹9,00,000; Average Profits ₹2,80,000 and Normal rate of return is 20%, then value of goodwill as per capitalisation of super profits is:

₹5,00,000

The correct answer is option 2- ₹5,00,000.

Normal profit = Average capital employed x Normal rate of return/100
                     = 9,00,000 x 20/100
                     = ₹1,80,000

Super profit = Average profit -Normal profit
                    = 2,80,000 -1,80,000
                    = ₹1,00,000

Goodwill as per capitalisation of super profit = Super profit x 100/ Normal rate of return
                                                                      = 1,00,000 X 100/20
                                                                      = ₹5,00,000