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
                          = 2500000 - 450000
                          = ₹2050000
Rate of return = 10%

Normal profit = 2050000 x 10/100
                    = ₹205000

Super profit = Average profit -Normal profit
                  = 250000 - 205000
                  = ₹45000

Goodwill = Super profit x 100/Normal rate of return
             = 45000 x 100/10
             = ₹450000