A firm earns ₹ 1,10,000. The normal rate of return is 10%. The assets of the firm amounted to ₹ 11,00,000 and liabilities to ₹ 1,00,000. Value of goodwill by capitalisation of Average Actual Profits will be ______.

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A firm earns ₹ 1,10,000. The normal rate of return is 10%. The assets of the firm amounted to ₹ 11,00,000 and liabilities to ₹ 1,00,000. Value of goodwill by capitalisation of Average Actual Profits will be ₹ 1,00,000. Explanation: Given: Average Actual Profit = ₹ 1,10,000 Normal Rate of Return (NRR) = 10% Assets = ₹ 11,00,000 Liabilities = ₹ 1,00,000 Capital Employed = Assets − Liabilities = 11,00,000 − 1,00,000 = ₹ 10,00,000 Capitalised Value = `"Average Actual Profits" xx 100/"NRR" = 1,10,000 xx $\frac{100}{10}$` = ₹ 11,00,000 Goodwill = Capitalised Value − Capital Employed = 11,00,000 − 10,00,000 = ₹ 1,00,000

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