Average profit of the firm during the last few years is Rs 2,00,000

19 :-  Average profit of the firm during the last few years is Rs 2,00,000 and the normal rate of return in a similar business is 10%. If the goodwill of the firm is Rs 2,50,000 at 4 years’ purchase of super profit, find the capital employed by the firm.

Solution:- Goodwill = Super profit x No. of years purchased
                               = (Average profit – Normal profit) x No. of years purchased  
2,50,000  = [2,00,000 – (Capital employed x Normal rate of return
2,50,000/4 = 2,00,000 – (Capital employed x 10/100)
62,500  = 2,00,000 – (Capital employed x 10/100)
Capital employed x 10/100 = 2,00,000 – 62,500
Capital employed = 1,37,500 x 100/10
Capital employed = Rs 13,75,000