A firm earns an average profit of Rs 80,000 on capital employed of Rs 300,000. The normal rate of return is 15%. What is the goodwill at 2 years' purchase of super profit?
Answer and explanation
Correct answer: D. Rs 70,000
- Step 1: Normal profit = 300000 x 15% = 45000.
- Step 2: Super profit = 80000 - 45000 = 35000, and goodwill = 35000 x 2 = 70000.
Answer
Rs 70,000.
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