The average Net Profits expected in the future by ABC Firm are Rs. 36,000 per year. The average capital employed in the business by the firm is Rs. 2,00,000. The rate of expected from capital invested in this class of business is 10%. The muneration of the partners is estimated to be Rs. 6,000 per annum. Find out the value of goodwill on the basis of two years's purchase of Super Profits.

Explanation

(i) Actual Average Profit : Rs. 36,000 - Rs. 6,000 = Rs. 30,000
(ii) Normal Profit = Capital Invested `xx ("Normal Rate of Return")/(100)`
= Rs. 2,00,000 `xx (10)/(100) =`Rs. 20,000
(iii) Super Profit = Actual Average Profit - Normal Profit
= Rs. 30,000 - Rs. 20,000 = Rs. 10,000
(iv) Val ue of Goodwill = Super Profit `xx` No. of year's Purchased
= Rs. 10,000 `xx` 2 = Rs. 20,000