A business earned an average profit of ₹ 8,00,000 during the last few years. The normal rate of profits in a similar type of business is 10%. The total value of assets and liabilities of the business were ₹ 22,00,000 and ₹ 5,60,000 respectively.

A business earned an average profit of ₹ 8,00,000 during the last few years.

The normal rate of profits in a similar type of business is 10%.

The total value of assets and liabilities of the business were ₹ 22,00,000 and ₹ 5,60,000 respectively.

Calculate the value of goodwill of the firm by the super profit method. If it is valued at 2.5 years’ purchase of super profit.

[Ans.: Net Assets = ₹ 22,00,000 – ₹ 5,60,000 = ₹ 16,40,000; Normal Profit – ₹ 1,64,000; Super Profit – ₹ 6,36,000; Goodwill – ₹ 15,90,000.]