The Goodwill of a firm is Rs. 30,000, when it is valued at three years' purchase of the super profits of the business. Find the normal rate of return, if the firm's capital employed is Rs. 5,00,000 and average profits of last five years were Rs. 60,000.
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → 10%
Goodwill here is three years’ purchase of super profits, and super profit is the average profit less the normal profit. Work back from the goodwill to the normal profit, and then to the rate.
Super profit = Rs. 30,000 ÷ 3 = Rs. 10,000
Normal profit = Average profit − Super profit
Normal profit = Rs. 60,000 − Rs. 10,000 = Rs. 50,000
Normal rate of return = Rs. 50,000 ÷ Rs. 5,00,000 × 100 = 10%
Check: normal profit at 10% on Rs. 5,00,000 is Rs. 50,000; super profit Rs. 10,000 × 3 = Rs. 30,000, the goodwill given.
Note: This question is from NCERT (2026-27). NTA sets numerical questions from NCERT too, so do not ignore NCERT while practising numericals.
NCERT (2026-27 edition):
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