A business has earned an average profit ₹60,000 in last 3 years. Capital Employed of the business is of ₹5,00,000. Normal Rate of Return for same kind of business is 10%. Calculate the value for Goodwill of the partnership firm.

₹1,00,000

The correct answer is option 3- ₹1,00,000.

Goodwill is calculated by the method of capitalisation of super profit.

Normal profit = 5,00,000 x 10/100
                     = ₹50,000

Average Profit = ₹60,000

Super profit  = Average profit - Normal profit
                     = 60,000 - 50,000
                    = 10,000

Goodwill = Super Profit x 100 / Normal rate of return
Goodwill = 10,000 x 100/10
              = ₹1,00,000