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The super profit is ₹50,000 and the normal rate of return is 20%. What is the value of goodwill under the capitalization of super profit method?

Answer and explanation

Correct answer: ₹2,50,000

Under the capitalization of super profit method, goodwill = super profit × 100 / normal rate of return. Therefore, goodwill = ₹50,000 × 100 / 20 = ₹2,50,000. Option C is only the amount of super profit, not the value of goodwill. Exam tip: You can also divide by the rate expressed as a decimal: ₹50,000 ÷ 0.20 = ₹2,50,000.

Related tags

GoodwillCapitalization Of Super ProfitPartnership AccountsNormal Rate Of ReturnAccountancy NumericalPartnership Accounts Basic ConceptsAccountancyClass 12 Mcq

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