A business has earned an average profit of ₹ 4,00,000 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 ₹ 4,00,000 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 profits.

Assets of the business were ₹ 40,00,000 and its external liabilities ₹ 7,20,000.]

[Ans.: (i) Goodwill – ₹ 7,20,000; (ii) Goodwill – ₹ 2,16,000.]