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:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → ₹5,00,000
Under capitalisation of super profits, goodwill is the capital that would earn the super profit at the normal rate of return:
Normal profit = ₹9,00,000 × 20/100 = ₹1,80,000
Super profit = ₹2,80,000 − ₹1,80,000 = ₹1,00,000
Goodwill = Super profit × 100 ÷ Normal rate of return
Goodwill = ₹1,00,000 × 100/20 = ₹5,00,000
Note: The book prints the formula on one line as “Super Profits × 100 Normal Rate of Return”; it means Super Profits × 100 divided by the Normal Rate of Return.
NCERT (2026-27 edition):
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