From the figures given below, calculate goodwill according to the capitalisation of Average Profits Method :
(i) Actual Average Profits = Rs. 72,000
(ii) Normal Rate of Return = 10%
(iii) Assets = Rs. 9,70,000
(iv) Liabilities = Rs. 4,00,000

Explanation

Capitalised Value of Average Profits = Average Profits `xx (100)/("Normal Rate of Return")`
`= 72,000 xx (100)/(10) =` Rs. 7,20,000
Capital Employed = Assets - Liabilities
(i.e., Net Assets as on the date of Valuation of Goodwill)
= Rs. 9,70,000 - Rs. 4,00,000 = Rs. 5,70,000.
Goodwill = Capitalised Value of Average Profits - Net Assets
= Rs. 7,20,000 - Rs. 5,70,000 = Rs. 1,50,000.