Average profit Rs. 20,000, normal profit Rs. 5,000, calculate goodwill on the basis of 3 year purchase of super profit

The correct answer is A. Rs. 40,000.

Goodwill is an intangible asset that arises from the expectation of future economic benefits arising from assets that are not capable of being individually identified and separately recognized. It is often referred to as the “good name” of a business.

Goodwill can be calculated in a number of ways, but the most common method is the super profit method. This method involves calculating the average profit of the business over a period of time, and then subtracting the normal profit from this figure. The resulting figure is the super profit, and this is multiplied by the number of years that the business is expected to continue to generate this level of profit.

In this case, the average profit is Rs. 20,000, the normal profit is Rs. 5,000, and the business is expected to continue to generate this level of profit for 3 years. Therefore, the goodwill is calculated as follows:

Goodwill = Super