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The average profit is ₹1,60,000 and the normal rate of return is 16%. What is the capitalised value of the business?

Answer and explanation

Correct answer: ₹10,00,000

Capitalised value = Average Profit ÷ Normal Rate of Return. Therefore, ₹1,60,000 ÷ 16% = ₹1,60,000 ÷ 0.16 = ₹10,00,000. Option B is only the average profit, not the capitalised value. Exam tip: Convert the percentage rate into decimal form before dividing.

Related tags

GoodwillCapitalised-ValueAverage-ProfitNormal-Rate-Of-ReturnPartnership Accounts Basic ConceptsAccountancyClass 12 Mcq

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