Question

Rajan and Rajani are partners in a firm. Their capitals were Rajan ₹ 3,00,000; Rajani ₹ 2,00,000. During the year 2017-18, the firm earned a profit of ₹ 1,50,000. Calculate the value of goodwill of the firm by capitalisation of super profit assuming that the normal rate of return is 20%.

Answer 1

Solution:

Goodwill = Super Profit x  $\frac{Normal Rate of Return}{100}$

Super Profit = Average Profit - Normal Profit Average Profit

                   = 1,50,000 (given)

Normal Profit = Capital Employed x Normal Rate of Return

                      = (3,00,000+2,00,000) x 20%

                      = 1, 00,000

Super Profit = 1,50, 000 - 1, 00, 000

                    = 50,000

Goodwill = 50, 000 x $\frac{100}{20}$ = 2, 50 , 000