Question

The Goodwill of a firm is valued at 2,02,500 at 3 years purchase of Super Profit. Determine the missing values:

\[\text{Average Profit} = \frac{₹5,40,000}{3} = ₹1,80,000\]

$$\text{Normal Profit} = \frac{₹\quad\text{(c)}}{100} \times 15 = ₹\ \dots\dots\dots\dots\dots\dots$$

$$\text{Super Profit} = \text{Average Profit} - \text{Normal Profit}$$

$$₹1,80,000 - \underline{\text{ }₹\quad\text{(b)}\text{ }} = \underline{\text{ }₹\quad\text{(a)}\text{ }}$$

$$\text{Goodwill} = \text{Super Profit} \times \text{No. of years' purchase}$$

Answer 1

$$\text{Goodwill} = \text{Super Profit} \times \text{No. of years' purchase}$$
$$₹2,02,500 = \text{Super Profit} \times 3$$
$$\text{Super Profit} = \frac{₹2,02,500}{3} = ₹67,500\text{ (a)}$$

$$\text{Super Profit} = \text{Average Profit} - \text{Normal Profit}$$
$$₹67,500 = ₹1,80,000 - \text{Normal Profit}$$
$$\text{Normal Profit} = ₹1,80,000 - ₹67,500 = ₹1,12,500\text{ (b)}$$

$$\text{Normal Profit} = \text{Capital Employed} \times \frac{\text{Normal Rate of Return}}{100}$$

$$₹1,12,500 = \text{Capital Employed} \times \frac{15}{100}$$

$$\text{Capital Employed} = ₹1,12,500 \times \frac{100}{15} = ₹7,500,000\text{ (c)}$$