The books of a business showed that the firm’s capital employed on December 31, 2025 was Rs. 7,00,000 and the profits for the last five years were: 2021– Rs. 80,000; 2022-Rs. 85,000; 2023-Rs. 75,000; 2024- Rs. 80,000; 2025-Rs. 75,000. What will be the value of goodwill based on 3 years' purchase of the super profits of the business, given that the normal rate of return is 10%?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → 27,000
Super profit is the profit a firm earns over and above the normal profit, that is, the profit an ordinary firm would earn on the same capital at the normal rate of return. Under the super profits method, goodwill is super profit × number of years’ purchase.
Average profit of the last five years:
Total profit = Rs. 80,000 + Rs. 85,000 + Rs. 75,000 + Rs. 80,000 + Rs. 75,000 = Rs. 3,95,000
Average profit = Rs. 3,95,000 ÷ 5 = Rs. 79,000
Super profit and goodwill:
Normal profit = Rs. 7,00,000 × 10% = Rs. 70,000
Super profit = Rs. 79,000 − Rs. 70,000 = Rs. 9,000
Goodwill = Rs. 9,000 × 3 = Rs. 27,000
Note: NTA picked this question from an NCERT (2026-27) illustration and changed the figures. Do not ignore NCERT while practising numericals.
NCERT (2026-27 edition):
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