Ayub and Amit are partners in a firm and they admit Jaspal into partnership w. e. f. 1st April, 2018. They agreed to value goodwill at 3 years purchase of Super Profit Method for which they decided to average profit of last 5 years. The profit for the last 5 years were:
The firm has total assets of ₹ 20,00,000 and Outside Liabilities of ₹ 5,00,000 as on that date. Normal Rate of Return in similar business is 10%.
Calculate value of goodwill.
Answers
Complete Question:
Ayub and Amit are partners in a firm and they admit Jaspal into partnership w. e. f. 1st April, 2018. They agreed to value goodwill at 3 years purchase of Super Profit Method for which they decided to average profit of last 5 years. The profit for the last 5 years were:
Year Ended Net Profit
31st March, 2014 1,50,000
31st March, 2015 1,80,000
31st March, 2016 1,00,000( Including abnormal loss of l 1,00,000) 31st March, 2017 2,60 000 ' (Including abnormal gain (profit) of 40,000)
31st March, 2018 2,40,000
The firm has total assets of ₹ 20,00,000 and Outside Liabilities of ₹ 5,00,000 as on that date. Normal Rate of Return in similar business is 10%.
Calculate value of goodwill.
Solution:
1.
Calculation Of Normal Profits (31" March)
Years 2014 2015 2016 2017 2018
Profit /Loss 1,50,000 1,80,000 1,00,000 2,60,000 2,40,000
Adjustment --- --- 1,00,000 (40.000) ---
Normal Profit 1,51000 1,80,000 2,00,000 2,20,000 2,40,000
Total of Normal Profit = 1,50,000 + 1,80,000 + 2,00,000 + 2,20,000 + 2,40,000
= Rs.9,90,000
2. Calculation of Capital Employed
Capital employed = Total Assets - Outside liabilities
Capital employed = Rs.20,00,000 - Rs.5,00,000 = Rs.15.00,000
3. Calculation Super Profit
Average Profit =
=
= 1, 98, 000
Normal Profit = Capital Employed x
Normal Profit = 15, 00, 000 x = 1, 50, 000
Super Profit = Average Profit - Normal Profit
Super Profit = 1,98,000 - 1,50,000 = 48,000
Goodwill = Super Profit x Number of Year Purchase
= 48,000 x 3 = Rs.1,44,000
Answer:
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