Q. Amit and Kartik are partners sharing profits and losses equally. They decided to admit Saurach
equal share in the profits. For this purpose the goodwill of the firm was to be valued at four years
The profit of
purchase of super profits. The Balance Sheet of the firm on Saurabh's admission was as follows:
Balance Sheet of Amit and Kartik as at 31st March 2019
Amount
Liabilities
Amount
Assets
90,000
50,000
Capitals:
Amit
Kartik
Reserve
Sundry Creditors
Loan
Machinery
Furniture
Debtors
1,40,000 Stock
20,000 Cash
5,000
25,000
75,000
15,000
20,000
30,000
50,000
1,90,000
1,90,000
The normal rate of return is 12% per annum. Average profit of the firm for the last four years was 30,000.
Calculate Saurabh's share of goodwill.
(3)
Q. A firm eamed an average profit of 3,00,000 during the last few years. The normal rate of return of the industry is
15%. The assets of the business were 17,00,000 and its liabilities were 2,00,000. Calculate the goodwill of the firm
by capitalisation of average profits.
(3)
Answers
what is this
purchase of super profits. The Balance Sheet of the firm on Saurabh's admission was as follows:
Balance Sheet of Amit and Kartik as at 31st March 2019
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Saurabh's share of goodwill is Rs. 14,400
Explanation:
Calculation of Goodwill on the basis of Capitalization of Super Profit method:
Capital Employed = Total Assets - Liabilities (Loan + Creditors)
= 190,000 - (25,000 + 5,000)
= Rs. 1,60,000
Normal Profit [ Average Capital Employed × Normal Rate of Return /100]
= 1,60,000 x 12%
= 19,200
Average Profit = 30,000 (given)
Super Profit = Average Profit - Normal Profit
= 30,000 - 19,200
= Rs. 10,800
Goodwill @ 4 years purchase of Super Profit (10,800 x 4) = Rs. 43,200
Saurabh's share of goodwill (43,200 x 1/3) = Rs. 14,400