CA Foundation · Accounting · Partnership and LLP Accounts
The average profit of a firm is ₹1,80,000 and the capital employed is ₹10,00,000. The normal rate of return in the industry is 12%. Goodwill is valued at 4 times the super profit. Goodwill is:
Goodwill is ₹2,40,000. Normal profit at 12% on ₹10,00,000 is ₹1,20,000, so super profit is ₹1,80,000 less ₹1,20,000, which is ₹60,000. Four times this super profit gives goodwill of ₹2,40,000.
- A₹2,40,000Correct
- B₹7,20,000
- C₹4,80,000
- D₹6,00,000
Explanation
Normal profit = 12% of 10,00,000 = 1,20,000. Super profit = 1,80,000 − 1,20,000 = 60,000. Goodwill = 4 × 60,000 = 2,40,000. Option 7,20,000 wrongly multiplies the average profit by 4.
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