Question

@mistymoles
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A partnership firm has earned net profit during the last 3 years as : 2013 - 18,000, 2014 - 22,000 and 2015 - 26,000. The firm has a fixed capital of * 1,00,000 and 15% is considered as fair return on capital employed. Calculate the value of goodwill on the basis of 3 years' purchase of average super profit. (Ans. 121,000]​

Answer 1

Step 1: Calculation of Normal Profit:

Normal profit= Capital employed * [ Normal rate of return/100]

= 80000* [15/100]

= 12000

Step 2: Calculation of Average Profit:

Average Profit= [ 17000+20000+23000]/3

= 20000

Step 3: Calculation of Super Profit:

Super Profit= Average Profit- Normal Profit

= 20000-12000

= 8000

Step 4: Calculation of Goodwill:

Goodwill= 8000* 2

= 16000