The goodwill based on capitalization of average profit method is valued at ₹1,80,000. If Net Assets are ₹8,20,000 then find the capitalized value of average profits.
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Rs. 10,00,000
Under the capitalisation of average profits method, goodwill = capitalised value of average profits − net assets. Here goodwill and net assets are given, so the formula is turned round.
Capitalised value of average profits = Goodwill + Net Assets
= Rs. 1,80,000 + Rs. 8,20,000
= Rs. 10,00,000
Check: in the book the average profit is Rs. 1,00,000 at a 10% normal rate, and Rs. 1,00,000 × 100 ÷ 10 gives the same Rs. 10,00,000.
NCERT (2026-27 edition):
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