A business has earned average profit of Rs. 1,00,000 during the last few years and the normal rate of return in similar business is `10%`. Find out 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 profit.
Assets of the business were Rs. 10,00,000 and its external liabilities Rs. 1,80,000.

Explanation

(i) As per Capitalisation of Super Profit Method:
Goodwill `= ("Super Profit " xx 100)/("Normal Rate of Return")= (Rs. 18,000 xx 100)/(10) = Rs. 1,80,000 .`
(ii) As per Super Profit Method:
Goodwill = Super Profit `xx` Numger of Years' Purchase
` " " ` = Rs. 18,000 `xx` 3 = Rs. 54,000.
Working Notes:
1. Capital Employed = Assets - External Liabilities
` " " ` = Rs. 10,00,000 - Rs. 1,80,000 = Rs. 8,20,000.
2. Normal Profit `= "Capital Employed" xx ("Normal Rate of Return")/(100)= Rs. 8,20,000 xx (10)/(100) = Rs. 82,000. `
3. Super Profit = Average Profit - Normal Profit
` " " ` = Rs. 1,00,000 - Rs. 82,000 = Rs. 18,000.