Average profit earned by a firm is Rs. 2,50,000 which includes overvaluation of stock of Rs. 10,000 on an average basis. Capital invested in the business is Rs. 14,00,000 and the normal rate of return is 15%. Calculate goodwill of the firm on the basis of 4 times the super profit. Goodwill will be
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Explanation:
average profit 2,50,000
less overvalue of stock 10,000
=2,40,000
normal profit= capital invested×normal rate/100
14,00000×15/100=2,10,000
super profit =average profit-normal profit
2,40,000-2,10,000=30,000
Goodwill = 30,000×4= 1,20,000
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