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Question
Average profits of a firm during the last few years are ₹ 50,000 and the normal rate of return in a similar business is 5%. If the goodwill of the firm is ₹ 1,00,000 at 5 years' purchases of super profit, find the capital employed by the firm.
Options
₹ 6,00,000
₹ 5,00,000
₹ 3,00,000
₹ 2,50,000
MCQ
Solution
₹ 6,00,000
Explanation:
Super Profit = `100000/5` = ₹ 20,000
Normal Profit = Average Profit - Super Profit
= ₹ 50,000 - ₹ 20,000 = ₹ 30,000
Capital Employed = `("Normal Profit" xx 100)/"NRR"`
`= (30,000 xx 100)/5`
= ₹ 6,00,000
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Methods of Valuation of Goodwill
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