Capital of the Firm of Sharma and Verma is ₹ 2,00,000 and the Market Rate of Interest is 15% :- Goodwill

Capital of the firm of Sharma and Verma is ₹ 2,00,000 and the market rate of interest is 15%. Annual salary to partners is ₹ 12,000 each. The profits for the last three years were ₹ 60,000; ₹ 72,000 and ₹ 84,000. Goodwill is to be valued at 2 years' purchase of last 3 years' average super profit.
Calculate goodwill of the firm.

Goodwill = Super Profit x Number of Year Purchase

Normal Profit = Capital Investment x `"Normal Rate of Return"/100`

= Rs. 2,00,000 x `frac{15}{100}`

= Rs. 30,000

Year Profit before Partner’s Salary – Partner’s Salary = Actual Profit after Salary

= 1,60,000 – 24,000 = 36,000
= 2,72,000 – 24,000 = 48,000
= 3,84,000 – 24,000 = 60,000

Average Actual Profit after Salary Partners

= `frac{36,000+48,000+60,000}{3}`

= `frac{1,44,000}{3}`

= Rs. 48,000

Super profit = Average Actual profit after Salaries - Normal profit

= Rs. (48,000 - 30,000)

= Rs. 18,000

Number of Year Purchase = 2

Super Profit = Rs. 18,000

Goodwill = Super Profit x No. of year Purchase

Goodwill = 18,000 x 2

Goodwill = Rs. 36,000

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

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