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The super profit is ₹54,000 and the normal rate of return is 18%. What is the value of goodwill using the capitalization of super profit method?

Answer and explanation

Correct answer: ₹3,00,000

Under the capitalization of super profit method, goodwill = super profit ÷ normal rate of return. Therefore, goodwill = ₹54,000 ÷ 18/100 = ₹3,00,000. Option B results from multiplying the super profit by 18%, which is not the required procedure. Exam tip: Convert the percentage rate into a decimal or fraction before dividing.

Related tags

GoodwillCapitalization Of Super ProfitPartnership AccountsNormal Rate Of ReturnNumerical AccountingPartnership Accounts Basic ConceptsAccountancyClass 12 Mcq

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