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The average profit is ₹70,000, the normal profit is ₹55,000, and the number of years’ purchase is 3. What is the goodwill of the firm under the super profit method?

Answer and explanation

Correct answer: ₹45,000

Super profit = average profit − normal profit = ₹70,000 − ₹55,000 = ₹15,000. Goodwill = super profit × years’ purchase = ₹15,000 × 3 = ₹45,000, so option A is correct. ₹15,000 is only the super profit for one year, not the goodwill. In the exam, first calculate super profit and then multiply it by the years’ purchase.

Related tags

Goodwill AccountingSuper Profit MethodPartnership AccountsReconstitution Admission Of A PartnerAccountancyClass 12 Mcq

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