A firm earns an average profit of Rs 100,000 on capital employed of Rs 600,000. The normal rate of return is 12%. What is the goodwill at 3 years' purchase of super profit?
Answer and explanation
Correct answer: D. Rs 84,000
- Step 1: Normal profit = 600000 x 12% = 72000.
- Step 2: Super profit = 100000 - 72000 = 28000, and goodwill = 28000 x 3 = 84000.
Answer
Rs 84,000.
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