A business has earned average profits of Rs. 1,00,000 during the last few years and the normal rate of return in a similar business is 25%. Ascertain - CUET Accountancy MCQ CUET Accountancy 2025 15 May Shift 1 2026 | ExamTest.live

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A business has earned average profits of Rs. 1,00,000 during the last few years and the normal rate of return in a similar business is 25%. Ascertain the value of goodwill by capitalisation of average profits method, given that the value of net assets of the business is Rs. 3,20,000.

Solution & Step-by-step Explanation

Under the Capitalisation of Average Profits Method, Goodwill is calculated as: Goodwill = Capitalised Value of Average Profits - Net Assets Calculate the Capitalised Value of Average Profits: Capitalised Value = \frac{Average Profit}{Normal Rate of Return} \times 100 Capitalised Value = \frac{1 , 00 , 000}{25} \times 100 = Rs. 4, 00, 000 Calculate Goodwill:Given Net Assets (Capital Employed) = Rs. 3, 20, 000 $ Goodwill = 4, 00, 000 - 3, 20, 000 = Rs. 80, 000 $

Try it yourself before checking the explanation above.

A business has earned average profits of Rs. 1,00,000 during the last few years and the normal rate of return in a similar business is 25%. Ascertain the value of goodwill by capitalisation of average profits method, given that the value of net assets of the business is Rs. 3,20,000.

Rs. 80,000

Rs. 2,40,000

Rs. 4,00,000

Rs. 2,60,000

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