Question

5.
Yash and Karan were partners in an interior designer firm. Their fixed
capitals were * 6,00,000 and * 4,00,000 respectively. There were credit
balances in their current accounts of 4,00,000 and 5,00,000
respectively. The firm had a balance of * 1,00,000 in General Reserve.
The firm did not have any liability. They admitted Radhika into
partnership for
1t
th share in the profits of the firm. The average profits
4
of the firm for the last five years were 5,00,000. Calculate the value of
goodwill of the firm by capitalization of average profits method. The
normal rate of return in the business is 10%.​

Answer 1

Answer:

The value of goodwill is $30,00,000$.

Explanation:

Goodwill = capitalized valve of the firm - capital employed

Capitalized valve of the firm $= \frac{Average profits * 100}{Normal rate of return}$

Average profits =$5,00,000$

Normal rate of return =$10%$

Capitalized valve of the firm $= \frac{5,00,000*100 }{10}$

=$5,00,00,000$

Capital employed = yash's capital + karan's capital +yash's current account +karan's current  account +general reserve

yash's capital =$6,00,000$

karan's capital =$4,00,000$

yash's current account=$4,00,000$

karan's current  account =$5,00,000$

general reserve=$1,00,000$

Capital employed $= 6,00,000+4,00,000+4,00,000+5,00,000+1,00,000$

$=20,00,000$

Goodwill =$50,00,000- 20,00,000$

=$30,00,000$

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Answer 2

The value of goodwill of the firm is 30,00,000

Given:

Fixed capital of Yash = 6,00,000

Fixed capital of Karan = 4,00,000

Credit balances = 4,00,000 and 5,00,000

Balance of the firm = 1,00,000

To Find:

The value of goodwill of the firm

Solution:

Calculating the normal profit -

= 6,00,000 + 4,00,000 + 4,00,000 + 5,00,000 + 1,00,000 x 10%

= 20,00,000 x 10%

= 2,00,000

Calculating the super profit -

= Average Profit - Normal profit

= 5,00,000 - 2,00,000

= 3,00,000

Calculating Goodwill -

= Super profit x 100/10

= 3,00,000 x 100/10

= 30,00,000

Answer: The value of goodwill of the firm is 30,00,000

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