Question

The normal rate of return is 20%. The total capital employed is Rs.6,00,000. The average profit is Rs.1,50,000. Calculate goodwill as the basis of 3 years purchase of super profits. a) Rs.90,000 b) Rs.1,20,000 c) Rs.1,00,000 d) Rs.60,000

Answer 1

A) 90000 is correct answer. Solution you just find the normal profit from normal rate of return 600000*20% = 120000 you get as normal profit

Now for super profit you less the amount from avg profit to normal profit 150000-120000 = 30000

Then value of goodwill 30000*3= 90000