A business has earned an average profit of ₹ 8,00,000 during the last few years and the normal rate of return in a similar business is 10%. Find the value of goodwill by:

A business has earned an average profit of ₹ 8,00,000 during the last few years and the normal rate of return in a similar business is 10%.

Find the value of goodwill by:

(i) Capitalisation of Super Profit Method; and

(ii) Super Profit Method if the goodwill is valued at 3 years’ purchase of super profit.

Assets of the business were ₹ 80,00,000 and its external liabilities ₹ 14,40,000.

[Ans.: Goodwill – (i) ₹ 14,40,000; (ii) ₹ 4,32,000.]