The capital of the firm is Rs. 1,00,000 and normal rate of return is 8%. If the average profits for last 5 years are Rs. 12,000 then find goodwill of the firm based on 3 years' purchase of super profits.
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Rs. 12,000
Under the super profits method, goodwill is the value of the profits earned above the normal return on capital, multiplied by the agreed number of years’ purchase.
Normal profit = Rs. 1,00,000 × 8/100 = Rs. 8,000
Average profit = Rs. 12,000
Super profit = Rs. 12,000 − Rs. 8,000 = Rs. 4,000
Goodwill = Rs. 4,000 × 3 = Rs. 12,000
Rs. 12,000 here is the goodwill; it is equal to the average profit only by chance, so the working must be followed through.
NCERT (2026-27 edition):
|
