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The super profit is ₹84,000 and the normal rate of return is 21%. What is the value of the firm’s goodwill using the capitalisation of super profit method?

Answer and explanation

Correct answer: ₹4,00,000

Under the capitalisation of super profit method, goodwill = super profit ÷ normal rate of return. Therefore, goodwill = ₹84,000 ÷ 21% = ₹84,000 ÷ 0.21 = ₹4,00,000. Option C results from treating 21% incorrectly as a multiplier. Exam tip: Convert the percentage rate into a decimal before dividing.

Related tags

GoodwillPartnership AccountsCapitalisation Of Super ProfitPartnership Accounts Basic ConceptsAccountancyClass 12 Mcq

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