Calculate the value of the goodwill of a firm based on 3 years' purchase of super profits, if the normal rate of return is 10%, average profits for the last five years were Rs. 60,000 and the capital of the firm is Rs. 5,00,000.
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Rs. 30,000
Super profit is the profit a firm earns over and above the normal profit, that is, the profit an ordinary firm would earn on the same capital at the normal rate of return. Goodwill at “3 years’ purchase” is super profit × 3.
Normal profit = Rs. 5,00,000 × 10% = Rs. 50,000
Average profit = Rs. 60,000
Super profit = Rs. 60,000 − Rs. 50,000 = Rs. 10,000
Goodwill = Rs. 10,000 × 3 = Rs. 30,000
NCERT (2026-27 edition): |