Question

Firm’s average profit are Rs.70,000 including abnormal profit of Rs.5,000.Capital invested in the business is Rs.5,50,000 and the normal rate of return is 10%.Calculate Goodwill at four times of super profit.

Answer 1

profit = 70000-5000
         =65000

normal return = 550000*10/100
                       =55000

super profit = average profit - super profit 
                   = 65000-55000
                    =10000

goodwill = super profit * no of years 
              =10000*4
goodwill =40000