(Super Profit Method).
A firm earned net profits during the last three years as:
`{:("Years",I,II,III),("Profits(Rs.)","18,000","20,000","22,000"):}`
The capital investment of the firm is Rs. 60,000. Normal return on the capital is `10%`. Calculate value of goodwill on the basis of three years' purchase of the average super profit for the last three years.

Explanation

(i) Average Profit `= (Rs. 18,000 +Rs. 20,000+Rs. 22,000)/(3) =RS. 20,000`
(ii) Normal Profit`=Rs. 60,000xx10//100=Rs. 6,000`
(iii) Super Profit ` =` Average Profit `xx` Normal Profit
`" " =Rs. 20,000-Rs. 6,000 = Rs. 14,000`
(iv) Goodwil `=` Super Profit `xx` Number of Years' Purchase
` " " =Rs. 14,000xx3=Rs. 42,000.`