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 A firm has an average profit of Rs. 60,000. Rate of return on Capital employed is 12.5% p.a. Total capital employed in the firm was Rs. 4,00,000. Goodwill on the basis of two years purchase of super profits is :
  • a)
    Rs. 20,000
  • b)
    Rs. 15,000
  • c)
    Rs. 14,000
  • d)
    None
Correct answer is option 'A'. Can you explain this answer?
Most Upvoted Answer
A firm has an average profit of Rs. 60,000. Rate of return on Capital ...
To calculate the goodwill on the basis of two years purchase of super profits, we need to first calculate the super profits of the firm. Super profits are the excess profits earned by a firm over its normal profits.

Let's calculate the super profits:

Step 1: Calculate the normal profit
Normal profit = Rate of return on capital employed * Capital employed
Normal profit = 12.5% * Rs. 4,00,000
Normal profit = Rs. 50,000

Step 2: Calculate the super profits
Super profits = Average profit - Normal profit
Super profits = Rs. 60,000 - Rs. 50,000
Super profits = Rs. 10,000

Now, we can calculate the goodwill:

Goodwill = 2 * Super profits
Goodwill = 2 * Rs. 10,000
Goodwill = Rs. 20,000

Therefore, the goodwill on the basis of two years purchase of super profits is Rs. 20,000.

Hence, the correct answer is option A) Rs. 20,000.
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Community Answer
A firm has an average profit of Rs. 60,000. Rate of return on Capital ...
Normal profit = total capital employed ×nrr÷100Super profit = avg. - normal profit Goodwill = super profit ×no. Of yrs
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A firm has an average profit of Rs. 60,000. Rate of return on Capital employed is 12.5% p.a. Total capital employed in the firm was Rs. 4,00,000. Goodwill on the basis of two years purchase of super profits is :a)Rs. 20,000b)Rs. 15,000c)Rs. 14,000d)NoneCorrect answer is option 'A'. Can you explain this answer?
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