A firm earns an average profit of Rs 60,000 on capital employed of Rs 400,000. The normal rate of return is 10%. What is the goodwill at 4 years' purchase of super profit?
Answer and explanation
Correct answer: A. Rs 80,000
- Step 1: Normal profit = 400000 x 10% = 40000.
- Step 2: Super profit = 60000 - 40000 = 20000, and goodwill = 20000 x 4 = 80000.
Answer
Rs 80,000.
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