The average profit for the last five years of a firm was ₹ 20,000. The normal rate of return in a similar business is 8%. Goodwill of the firm is…

Goodwill of the firm = Super Profit x Number of Years’ Purchase $\displaystyle 24,000$ = Super Profit x $\displaystyle 3$ Super profit = ₹$\displaystyle 8,000$ • Super Profit = Average Profit – Normal Profit $\displaystyle 8,000$ = $\displaystyle 20,000$ – Normal Profit Normal Profit = ₹$\displaystyle 12,000$ • Normal Profit = Normal Rate of Return x Capital Employed $\displaystyle 100$ $\displaystyle 12,000$ = $\displaystyle 8$ x Capital Employed $\displaystyle 100$ Capital Employed = ₹$\displaystyle 1,50$,000.