A business has earned average profits of Rs. 5,30,000 during the last few years and the normal rate of return in a similar business is 10%. Ascertain the value of goodwill by capitalisation of average profits method, given that the value of net assets of the business is Rs. 30,00,000.
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Rs. 23,00,000
Under the capitalisation of average profits method, the average profit is capitalised at the normal rate of return to find what the business is worth on its earnings. Goodwill is the excess of that value over the net assets of the business.
Capitalised value of average profits = Rs. 5,30,000 × 100/10 = Rs. 53,00,000
Net assets = Rs. 30,00,000
Goodwill = Rs. 53,00,000 − Rs. 30,00,000 = Rs. 23,00,000
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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