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The average profit of a business over the last five years was ₹ 60,000. The normal yield on capital invested in such a business is estimated at 10% p.a. Capital invested in the business is ₹ 5,00,000. The amount of goodwill, if it is based on 3 year’s purchase of the last 5 years’ super profits will be:

Ans – c) Explanation:- Normal Profit = Capital Employed * Normal Rate of Return Normal Profit = 5,00,000 * 10% Normal Profit = ₹ 50,000 Super profit = Average Profit – Normal Profit Super Profit = ₹ 60,000 – ₹…

The term ‘Number of Years’ Purchase means:

Ans – a) Explanation:- The ‘number of years purchase’ in the calculation of goodwill are the expected years that the profit due to goodwill is likely to arise in the future. For example, there is 2 years purchase. It means…