A business has earned average profits of ₹2,50,000 during the last few years. The firm has assets of ₹25,00,000 and external liabilities of ₹4,50,000. The similar business has rate of return of 10%. Calculate value of Goodwill by Capitalisation method of super profit method.

₹4,50,000

The correct answer is Option (1) - ₹ 4,50,000.

Average profits = ₹2,50,000
Capital employed = Assets - Liabilities
                          = 25,00,000 - 4,50,000
                          = ₹20,50,000
Rate of return = 10%

Normal profit = 20,50,000 x 10/100
                    = ₹2,05,000

Super profit = Average profit -Normal profit
                  = 2,50,000 - 2,05,000
                  = ₹45,000

Goodwill = Super profit x 100/Normal rate of return
             = 45,000 x 100/10
             = ₹4,50,000