A firm earns an average profit of Rs 60,000 on capital employed of Rs 500,000. The normal rate of return is 10%. What is the goodwill at 2 years' purchase of super profit?
Answer and explanation
Correct answer: D. Rs 20,000
- Step 1: Normal profit = 500000 x 10% = 50000.
- Step 2: Super profit = 60000 - 50000 = 10000, and goodwill = 10000 x 2 = 20000.
Answer
Rs 20,000.
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