Question

jai and mishan are partners their capital are rs. 3,00,000 and rs.2,00,000 are respectively . during the year ended 31.03.2021 the firm earned a profit of rs. 1,50,000 . assuming the normal rate of return as 20% calculate the goodwill on the basis of: 1) on the basis of 2 years purchase of super profit . 2)on the basis of capitalisation of super profit. 3)on the basis of capitalisation of average profit​

Answer 1

ANSWER :

• ✎ Value of Goodwill on the basis of 2 years purchase of super profit is Rs. 1,00,000.

• ✎ Value of Goodwill on the basis of capitalisation of super profit Rs. 2,50,000.

• ✎ Value of Goodwill on the basis of capitalisation of average profit is Rs. 2,50,000.

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SOLUTION :

❒ Given :-

• Capital of Jai = Rs. 3,00,000

• Capital of Mishan = Rs. 2,00,000

• Average profit of the firm = Rs. 1,50,000

• Normal rate of return = 20%

❒ To Calculate :-

• Goodwill on the basis of of 2 years purchase of super profit = ?

• Goodwill on the basis of capitalisation of super profit = ?

• Goodwill on the basis of capitalisation of average profit = ?

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❒ Calculation of Goodwill on the basis of 2 years purchase of super profit :-

Here,

• Total capital invested = Rs. 3,00,000 + Rs. 2,00,000 = Rs. 5,00,000

• Normal rate of return = 20%

• Average profit = Rs. 1,50,000

• No. of years purchases = 2 years

We know that,

• $\dag \: \: \underline{ \boxed{ \sf{ \: Normal \: \: Profit = \dfrac{Capital \: Invested \times Normal \: \: Rate \: \: of \: \: Return}{100} \: }}}$

Using this formula,

• ✪ Normal Profit = $\sf{\dfrac{Capital \: Invested \times Normal \: \: Rate \: \: of \: \: Return}{100}}$

➜ Normal Profit = $\sf{\dfrac{Rs. \: 5,00,000 \times 20}{100}}$

➜ Normal Profit = Rs. 1,00,000

• ∴ Super Profit = Average Profit - Normal Profit

➜ Super Profit = Rs. 1,50,000 - Rs. 1,00,000

➜ Super Profit = Rs. 50,000

Again,

We know that,

• $\dag \: \: \underline{ \boxed{ \sf{\: Value \: \: of \: \: Goodwill = Super \: \: Profit \times No. \: \: of \: \: years \: \: purchases \: }}}$

Using this formula,

• ★ Value of Goodwill = Super Profit × No. of years purchases

➜ Value of Goodwill = Rs. 50,000 × 2

∴ Value of Goodwill = Rs. 1,00,000

• Hence, Value of Goodwill on the basis of 2 years purchase of super profit is Rs. 1,00,000.

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❒ Calculation of Goodwill on the basis of capitalisation of super profit :-

Here,

• Super Profit = Rs. 50,000

• Normal Rate of Return = 20%

We know that,

• $\dag \: \: \underline{ \boxed{ \sf{ \: Value \: \: of \: \: Goodwill = \dfrac{Super \: \: Profit }{Normal \: \: Rate \: \: of \: \: Return} \: }}}$

Using the formula,

• ★ Value of Goodwill = $\sf{ \dfrac{Super \: \: Profit \times 100 }{Normal \: \: Rate \: \: of \: \: Return}}$

➜ Value of Goodwill = $\sf{\dfrac{Rs. \: 50,000 \times 100}{20}}$

∴ Value of Goodwill = Rs. 2,50,000

• Hence, Value of Goodwill on the basis of capitalisation of super profit is Rs. 2,50,000.

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❒ Calculation of Goodwill on the basis of capitalisation of average profit :-

Here,

• Average Profit = Rs. 1,50,000

• Normal Rate of Return = 20%

• Capital Employed = Rs. 5,00,000

We know that,

• $\dag \: \: \underline{ \boxed{ \sf{ \: Total \: \: Capitalised \: \: Value \: \: of \: \: Firm = \dfrac{Average \: \: Profit \times 100}{ Normal \: \: Rate \: \: of \: \: Return} \: }}}$

Using this formula,

• ✪ Total Capitalised Value of Firm = $\sf{\dfrac{Average \: \: Profit \times 100}{ Normal \: \: Rate \: \: of \: \: Return}}$

➜ Total Capitalised Value of Firm = $\sf{\dfrac{ Rs. 1,50,000 \times 100}{20}}$

➜ Total Capitalised Value of Firm = Rs. 7,50,000

Again,

We know that,

• $\dag \: \: \underline{ \boxed{ \sf{ \: Value \: \: of \: \: Goodwill = Total \: \: Capitalised \: \: Value \: \: of \: \: Firm - Capital \: \: Employed \: }}}$

Using this formula,

• ★ Value of Goodwill = Total Capitalised Value of Firm - Capital Employed

➜ Value of Goodwill = Rs. 7,50,000 - Rs. 5,00,000

∴ Value of Goodwill = Rs. 2,50,000

• Hence, Value of Goodwill on the basis of capitalisation of average profit is Rs. 2,50,000.