Question

Goodwill is to be valued at 3 years' purchase of average profits of 3 years upto the date of
valuation after deducting interest @ 6% on capital employed and a fair remuneration to each
partner. The profits are assumed to be earned evenly throughout the year. Fair remuneration
for the work done by each partner is * 18,000 per annum and total capital employed is?
1,80,000. The trading profits (before-charging interest on Capital employed and
remuneration of partners) were 2016 * 65,000 ; 2017 75,000 ; 2018 80,000 ; 2019
62,000. Calculate value of goodwill of a firm as on 30.6.2019. The firm is having three
partners.
[Ans. * 24,100]

Answer 1

Answer:

Average profits of 3 years upto date of valuation=

1/2×65000 + 75000+80000+1/2×62000

whole divided by 3

we get 32500+75000+80,000+31000/3

we get 72833

adjusted average profits=72833-10800-54000

=8033 Rupees

Goodwill valued=8033×3

=24100 approx (rounded off)