Question

The capital employed of the firm is Rs. 1,00,000 and normal rate of return is 8%, the average
profits for last 5 years are Rs. 12,000 and goodwill is to be worked out at 3 years' purchase of super
profits.

Answer 1

normal return = 100000*8/100                     
                          =8000
super profit = average profit - super profit      
                    = 12000-8000          
                     =4000
goodwill = super profit * no of years     
                =4000*3

goodwill =12000

Hope its useful ..!!

Answer 2

Goodwill= 12,000

Explanation:

Capital Employed = 1,00,000

Normal rate of return = 8%

Average profit  (5 years) = 12,000

Goodwill (3 years' purchase of super  profits ) = ?

Normal profit = Capital Employed x Normal rate of return

= 1,00,000 x 8%

=  8,000

Average profit () = 12,000

Computation of super profit = Average profit - Normal profit

= 12,000 - 8,000

= 4,000

Goodwill (3 year's purchase of super profit) = 3 x Super profit

= 3 x 4,000

= 12,000

Therefore , Goodwill amount is 12,000

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Average profit of ₹100000

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