A firm earns an average profit of Rs 100,000 on capital employed of Rs 500,000. 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 50,000
- Step 1: Normal profit = 500000 x 15% = 75000.
- Step 2: Super profit = 100000 - 75000 = 25000, and goodwill = 25000 x 2 = 50000.
Answer
Rs 50,000.
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