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Question : Average profit earned by a firm is Rs. 2,50,000 which includes overvaluation of stock of Rs 10,000 on average basis. Capital invested in the business is Rs. 14,00,000 and the normal rate of return is 15%. Calculate goodwill of the firm on the basis of 4 times the super profit.

 

Option 1: Rs 30,000

Option 2: Rs 40,000

Option 3: Rs 1,20,000

Option 4: None of these


Team Careers360 2nd Jan, 2024
Answer (1)
Team Careers360 19th Jan, 2024

Correct Answer: Rs 1,20,000


Solution : Answer = Rs 1,20,000

Average Profit = Rs. 2,50,000 Overvaluation of Stock = Rs. 10,000

Actual Average Profit = Rs. 2,50,000 = Rs. 10,000 (Note) = Rs. 2,40,000

Normal Profit = Capital Employed (Investment) × Normal Rate of Return/100

= Rs. 14,00,000 × = Rs. 2,10,000

Super Profit = Actual Average Profit - Normal Profit = Rs. 2,40,000 – Rs. 2,10,000 = Rs.30,000

Goodwill = Super Profit × 4

= Rs. 30,000 × 4 = Rs. 1,20,000.

Note: Overvaluation of stock is deducted as it increases the net profit.
Hence, the correct option is 3.

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