The capital of the firm is ₹1,00,000 and normal rate of return is 8%. If the average profits for last 5 years are ₹12,000 then find goodwill of the firm based on 3 years' purchase of super profits.

₹12,000

The correct answer is option 2- ₹12,000.

Capital = ₹1,00,000
Normal rate of return = 8%
Normal profit = 1,00,000 x 8/100
                    = 8,000

Average profit = 12,000

Super profit = Average profit - Normal profit
                  = 12,000 - 8,000
                  = 4,000

Goodwill = Super profit x no of years purchase
             = 4,000 x 3
             = 12,000