Rita and Mohit were partners in a firm sharing profits and losses in the ratio of $\displaystyle 7$ : 3. Their capitals were ₹ $\displaystyle 7,00,000$ and ₹ $\displaystyle 3,00,000$ respectively. The normal rate of return was $\displaystyle 10$%. The profits for the last four years were : ( ) $\displaystyle 2021$ - $\displaystyle 22$ $\displaystyle 3,30,000$ $\displaystyle 2022$ - $\displaystyle 23$ $\displaystyle 4,00,000$ $\displaystyle 2023$ - $\displaystyle 24$ $\displaystyle (70,000)$ $\displaystyle 2024$ - $\displaystyle 25$ $\displaystyle 5,00,000$ The closing stock for the year $\displaystyle 2024$ - $\displaystyle 25$ was undervalued by ₹ $\displaystyle 40$,000. Goodwill is to be valued at two years' purchase of last four years' average super profits. Calculate the value of goodwill of the firm.

=  Goodwill Super Profit Number of years’ purchase = − Super Profit Average Profit Normal Profit ($\displaystyle 1$/$\displaystyle 2$) Corrected Profit of $\displaystyle 2024$-$\displaystyle 25$ after adjustment of undervaluation of closing stock = $\displaystyle 5,00,000$ + $\displaystyle 40,000$ = `$\displaystyle 5,40,000$ = Average Profit $\displaystyle 3,30,000$ + $\displaystyle 4,00,000$ + $\displaystyle (70,000)$ + $\displaystyle 5,40,000$ $\displaystyle 4$ = $\displaystyle 12,00,000$ $\displaystyle 4$ = `$\displaystyle 3,00,000$ Capital Employed = $\displaystyle 7,00,000$ + $\displaystyle 3,00,000$ = `$\displaystyle 10,00,000$ = Normal Profit Normal Rate of Return x Capital Employed $\displaystyle 100$ =  $\displaystyle 10$/$\displaystyle 100$ $\displaystyle 10,00,000$ = `$\displaystyle 1,00,000$ = − Super Profit $\displaystyle 3,00,000$ $\displaystyle 1,00,000$ = `$\displaystyle 2,00,000$ =  Goodwill $\displaystyle 2,00,000$ $\displaystyle 2$ = `$\displaystyle 4,00,000$