The books of a business showed that the firm's capital employed is Rs. 2,50,000 and the profits for the last five years were: 2021-Rs. 20,000; 2022-Rs. 25,000; 2023-Rs. 27,500; 2024-Rs. 35,000 and 2025-Rs. 42,500. What will be the value of Super Profit, when the goodwill valuation is done on the basis of 3 years' purchase of super profits of the business, given that the normal rate of return is 10%.
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Rs. 5,000
Super profit is the profit earned over and above the normal profit, that is, over what a similar business would earn on the same capital at the normal rate of return.
Total profits = 20,000 + 25,000 + 27,500 + 35,000 + 42,500 = Rs. 1,50,000
Average profit = Rs. 1,50,000 ÷ 5 = Rs. 30,000
Normal profit = Rs. 2,50,000 × 10% = Rs. 25,000
Super profit = Rs. 30,000 − Rs. 25,000 = Rs. 5,000
The 3 years' purchase is needed only for goodwill (Rs. 5,000 × 3 = Rs. 15,000); the question asks for the super profit itself.
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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