Question

Ans. Value of goodwi
21. (Comprehensive) The following information relates to a partnership firm:-
(a) Profits for the last six years: - 2014: 18,000(Loss); 2015: 30,000; 2016: 25,000; 2017:
55,000; 2018: 65,000; 2019: 95,000. (b) Average capital employed 3,00,000. (C) Normal
rate of profit is 10%. Find out the value of goodwill on the following basis:- (a) Four years
purchase of average profit; (b) Four years' purchase of super profit; (c) Capitalization of
super profit.​

Answer 1

Answer:

Average profit = Total of Profits /number of years

2014 = (18000)

2015 = 30000

2016 = 25000

2017 = 55000

2018 = 65000

2019 = 95000

total l profits = 252000

Average profit =252000/6= 42000

Normal profit = capital employed × normal rate of return

= 300000×10%=30000

Super profit = Average profit -Normal profit

= 42000-30000=12000

Value of Goodwill

a) goodwill = Average profit ×no. ofyear purchase

= 42000×4=168000

b) goodwill = super profit ×no. of year purchase

= 12000×4=48000

c) goodwill = super profit ×100/normal rate of return

= 12000×100/10= 120000