Question

A and B were partners in a firm sharing profits and losses into 2 :1 ratio on 1st April 2017 they decided to admit C into partnership for 1/5th share in profit for this purpose Goodwill was valued at 80% of average annual profit of previous 4 years.calculate the amount of goodwill premium brought by c on his admission if profits for previous years were 167000,156000,192000,(10000)

Answer 1

Given:

• A and B are partners in a firm, sharing profits and losses in the ratio 2:1.
• C is admitted into the firm for 1/5th share.
• The goodwill is to be valued at 80% of the average profits of the past 4 years.
• The profits for the past 4 years were Rs 1,67,000, Rs 1,56,000, Rs 1,92,000 and a loss of Rs 10,000.

To find: The amount of premium on goodwill to be brought by C.

Answer:

Average profit = Total profit ÷ Number of years

• Total profit = Rs Rs 1,67,000 + Rs 1,56,000 + Rs 1,92,000 - Rs 10,000 = Rs 5,05,000
• Number of years = 4

Average profit = Rs 1,26,250

Goodwill = Average profit × 80%

Goodwill = Rs 1,26,250 × (80 ÷ 100)

Goodwill = Rs 1,01,000

Premium on goodwill to be brought by C = Goodwill of the firm × C's ratio

Premium on goodwill to be brought by C = Rs 1,01,000 × 1/5

Premium on goodwill to be brought by C = Rs 20,200

Therefore, the premium on goodwill to be brought by C is Rs 20,200.