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Class 12AccountancyPartnership Accounts - Basic ConceptsGoodwillExpert
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The average profit is ₹3,60,000, the normal profit is ₹2,85,000, and the normal rate of return is 15%. What is the value of the firm's goodwill using the capitalization of super profit method?

Answer and explanation

Correct answer: ₹5,00,000

Super profit = Average Profit − Normal Profit = ₹3,60,000 − ₹2,85,000 = ₹75,000. Under the capitalization of super profit method, Goodwill = Super Profit ÷ Normal Rate of Return = ₹75,000 ÷ 15% = ₹5,00,000. ₹75,000 is only the super profit, not the value of goodwill. Exam tip: Goodwill = Super Profit × 100 ÷ Normal Rate of Return.

Related tags

GoodwillCapitalization Of Super ProfitSuper ProfitPartnership AccountsPartnership Accounts Basic ConceptsAccountancyClass 12 Mcq
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10 more MCQs
  1. 1What is the basic meaning of goodwill in partnership?
  2. 2How is goodwill classified as an asset in accounting?
  3. 3What effect does a firm's good reputation have on its goodwill?
  4. 4Why is a stable customer base important for goodwill?
  5. 5What is the accounting treatment of purchased goodwill?
  6. 6Why is self generated goodwill generally not recorded in books?
  7. 7How is goodwill calculated under average profit method?
  8. 8The average profit is ₹50,000, and goodwill is valued at two years’ purchase. What is the value of goodwill?
  9. 9The profits for the last three years are ₹30,000, ₹45,000 and ₹60,000, respectively. What is the average profit used for calculating goodwill?
  10. 10The average profit for four years is ₹80,000, and goodwill is valued at three years’ purchase. What will be the value of goodwill?
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