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.​

Answer 1

Answer:

Calculation of goodwill :

(1) Average profit = Total profit/ No. of years

Average profit = Rs. (800000 + 1500000 + 1800000 - 400000 + 1300000) / 5

Average profit = Rs. 5000000/5

Average profit = Rs. 1000000

Goodwill = Average profit * No. of year's purchase

Goodwill = Rs. 1000000 * 3

Goodwill = Rs.3000000