A business has earned average profit of Rs. 8,00,000 during the last few years. The normal rate of profit in the similar type of business is `10%`.The total value fo assets and liabilities of the business were Rs. 22,00,000 and Rs. 5,60,000 respectively. Calculate the value of goodwill of the firm by super profit method if it is valued at 2`(1)/(2)` years' purchase of super profits.

Answer

Net Assets = Rs. 22,00,000 - Rs. 5,60,000 = Rs. 16,40,000; Normal Profit - Rs. 1,64,000;
Super Profit - Rs. 6,36,000; Goodwill - Rs. 15,90,000.