Question

. Ayub and Amit are partners in a firm and they admit Jaspal into partnership w.e.f. 1st April, 2020. 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 profits for the last 5 years were:
Year Ended
Net Profit )
31st March, 2016
1,50,000
31st March, 2017
1,80,000
31st March, 2018
1,00,000 (Including abnormal loss of 1,00,000)
31st March, 2019
2,60,000 (Including abnormal gain (profit) of 40,000)
31st March, 2020
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.​

Answer 1

Explanation:

Step 1: Calculation of Capital Employed:

Capital Employed= total assets- external liabilities

= 2000000- 500000

= 1500000

Step 2: Calculation of Normal Profit:

Normal Profit= 1500000 * [10/100]

= 150000

Step 3: Calculation of Average Profit:

Average Profit= [150000+180000+200000+220000+240000]/5

= 198000

Step 4: Calculation of Super Profit:

Super Profit= 198000- 150000

= 48000

Step 5: Calculation of goodwill:

Goodwill= 48000* 3

= 144000