Ajeet and Baljeet are Partners In a Firm. Their Capitals are ₹ 9,00,000 and ₹ 6,00,000 Respectively - [SOLUTION]

Ajeet and Baljeet are partners in a firm. Their capitals are ₹ 9,00,000 and ₹ 6,00,000 respectively. During the year ended 31st March, 2019 the firm earned a profit of ₹ 4,50,000. Assuming that the normal rate of return is 20%, calculate value of goodwill of the firm:

(i) By Capitalisation Method; and

(ii) By Super Profit Method if the goodwill is valued at 2 years' purchase of super profit.




Normal Profits = Capital Employed x `"Normal Rate of Return"/"100"`

Calculations for Capital Employed

Capital Employed = Total Liabilities + Current Liabilities

= Rs. (9,00,000 + 6,00,000)

= Rs. 15,00,000.

Normal Profits = Capital Employed x `"Normal Rate of Return"/"100"`

= Rs. 15,00,000 x `"20"/"100"`

= Rs. 3,00,000.

Average Profit = Rs. 4,50,000.

Now, Super Profit = Average Profit - Normal Profit

= Rs, (4,50,000 - 3,00,000)

= Rs. 1,50,000.

(i) Capitalisation Method

Goodwill = Super Profit x `"100"/"Normal Rate of Return"`

= Rs. 1,50,000 x `100/20`

= Rs. 7,50,000.

(ii) Super Profit Method

Goodwill = Super Profit x No. of Year Purchase

= Rs, 1,50,000 x 2

= Rs. 3,00,000.

Chapter-3 Goodwill: Nature and Valuation-TS.Grewal

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