A firm earned net profits durning the last seven years as follows :
`{:(2009,"Rs.","20,000 Profit",2010,"Rs.","70,000 Loss"),(2011,"Rs.","40,000 Loss",2012,"Rs.","2,50,000 Profit"),(2013,"Rs.","2,70,000 Profit",2014,"Rs.","3,00,000 Profit"),(2015,"Rs.","3,20,000 Profit",,,):}`
The Capital invested in the firm is Rs. 12,00,000. Normal rate of return in the similar type of business is 10%. Calculate the value of goodwill on the basis of `2(1)/(2)`years' purchases of average super profits earned durning the above mentioned seven years.

Explanation

(i) Actual Average Profit :
Total profits of last 7 years = Rs. 20,000 - Rs. 70,000 - Rs. 40,000 + Rs. 2,50,000 + Rs. 2,70,000 + Rs. 3,00,000 + Rs. 3,20,000
= Rs. 10,50,000
Average Profit = `(10,50,000)/(7)` = Rs. 1,50,000
(ii) Normal Profit = Capital Invested `xx ("Normal rate of return")/(100)`
= 12,00,000 `xx (10)/(100) =` Rs. 1,20,000
(iii) Super Profit = Actual Average Profit - Normal Profit
= Rs. 1,50,000 - Rs. 1,20,000 = Rs. 30,000
(iv) Value of Goodwill = Super profit `xx` Number of years purchased
= Rs. 30,000 `xx 2.5 =` Rs. 75,000.