Given Information:
- Capital = Rs. 1,00,000
- Normal Rate of Return = 8%
- Average Profits = Rs. 12,000
- Years' purchase = 3 years
Calculation of Normal Profits:
Normal Profits = Capital × Normal Rate of Return ÷ 100
Normal Profits = 1,00,000 × 8 ÷ 100 = Rs. 8,000
Calculation of Super Profits:
Super Profits = Average Profits - Normal Profits
Super Profits = 12,000 - 8,000 = Rs. 4,000
Super profits represent the excess profits earned over and above the normal profits expected from the capital employed.
Calculation of Goodwill:
Goodwill = Super Profits × Number of years' purchase
Goodwill = 4,000 × 3 = Rs. 12,000
The firm earns Rs. 4,000 more than what is normally expected, and this super profit is valued at 3 years' purchase to arrive at the goodwill value.
Correct Option: 2 (Rs. 12,000)