Ayub and Amit are partners in a firm and they admit Jaspal into partnership w.e.f. 1st April, 2019. They agreed to value goodwill at 3 years’ purchase of Super Profit Method for which they decided to average profit of last 5 years. The profits for the last 5 years were:
| Year Ended | Net Profit (₹) | |
| 31st March, 2015 | 1,50,000 | |
| 31st March, 2016 | 1,80,000 | |
| 31st March, 2017 | 1,00,000 | (Including abnormal loss of ₹ 1,00,000) |
| 31st March, 2018 | 2,60,000 | (Including abnormal gain (profit) of ₹ 40,000) |
| 31st March, 2019 | 2,40,000 |
The firm has total assets of ₹ 20,00,000 and Outside Liabilities of ₹ 5,00,000 as on that date. Normal Rate of Return in similar business is 10%. Calculate value of goodwill.
Goodwill = Super Profit x Number of Times
= Rs. (48,000 x 3)
= Rs. 1,44,000.
Working Notes:
Calculation of Normal Profits:
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Working Notes:
Calculation of Normal Profits:
| Year | Profit/Loss (Rs.) | Adjustment | Normal Profit (Rs.) |
| 31 March, 2015 | 1,50,000 | – | 1,50,000 |
| 31 March, 2016 | 1,80,000 | – | 1,80,000 |
| 31 March, 2017 | 1,00,000 | 1,00,000 | 2,00,000 |
| 31 March, 2018 | 2,60,000 | (40,000) | 2,20,000 |
| 31 March, 2019 | 2,40,000 | – | 2,40,000 |
| Total Profit | 9,90,000 |
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