Question

A and B are partners sharing profits and losses in the ratio of 5:3. On 1st April, 2019, C is admitted
to the partnership for 1/4th share of profits. For this purpose, goodwill is to be valued at two years
purchase of last three years' profits (after allowing partners' remuneration). Profits to be weighted
1:2:3, the greatest weight being given to last year. Net profit before partners remuneration were: 2016-17:
2,00,000; 2017-18: 2,30,000; 2018-19: 2,50,000. The remuneration of the partners is estimated to be
90,000 p.a. Calculate amount of goodwill.
(Ans.: Goodwill2,90,000)
​

Answer 1

Answer:

Explanation:

Calculation of profits

2015−16(2,00,000−90,000)=1,10,000

2016−17(2,30,000−90,000)=1,40,000

2017−18(2,50,000−90,000)=1,60,000

∴

Year Profits Weights Product

2016 1,10,000 1 1,10,000

2017 1,40,000 2 2,80,000

2018 1,60,000 3 4,80,000

Total 6 8,70,000

∴ Average profits =

6

8,70,000

​

=1,45,000

∴ Goodwill =1,45,000×2 years purchase

=Rs.2,90,000