Question : Average profits of a firm during the last few years are Rs. 80,000 and the normal rate o return in a similar business is 10%. If the goodwill of the firm is Rs. 1,00,000 at 4 years purchase of super profit, the value of capital employed by the firm is
Option 1: Rs 55,000
Option 2: Rs 5,50,000
Option 3: Rs 10,50,000
Option 4: Rs 1,00,000
Correct Answer: Rs 5,50,000
Solution : Answer = Rs 5,50,000
Goodwill at 4 year; purchase of Super Profit = Rs. 1,00,000
Super Profit = Rs. 1,00,000/4 = Rs. 25,000 Average Profit - Normal Profit = Super Profit
Normal Profit = Average Profit - Super profit = Rs. 80,000 - Rs. 25,000 = Rs. 55,000 Capital
Employed = 100/NRR × Normal Profit
= Rs. 55,000 × 100/10 = Rs. 5,50,000.
Hence, the correct option is 2.