# A firm earned ₹ 60,000 as profit, the normal rate of return being 10%. Assets of the firm are ₹ 7,20,000 (excluding goodwill) and Liabilities are ₹ 2,40,000. Find the value of Goodwill by Capitalisation of the Average Profit Method.

A firm earned ₹ 60,000 as profit, the normal rate of return being 10%. Assets of the firm are ₹ 7,20,000 (excluding goodwill) and Liabilities are ₹ 2,40,000. Find the value of Goodwill by Capitalisation of the Average Profit Method.

a) ₹ 2,40,000

b) ₹ 1,80,000

c) ₹ 1,20,000

d) ₹ 60,000

**Ans – c)**

Solution:-

Capital Employed = Assets (excluding goodwill) – Liabilities

Capital Employed = ₹ 7,20,000 – 2,40,000

Capital Employed = ₹ 4,80,000

Capitalised Value of Average Profit = Average Profit/Normal Rate of Return

Capitalised Value of Average Profit = ₹ 60,000 × 100/10

Capitalised Value of Average Profit = ₹ 6,00,000

Goodwill = Capitalised Value of Average Profit – Capital Employed

Goodwill = ₹ 6,00,000 – ₹ 4,80,000

Goodwill = ₹ 1,20,000