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.
Answer & explanation
Correct answer: option 2
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