The following information relates to a partnership firm:
(a) Profits / Losses for the last six years:
1st Year Rs.20,000 Profit
2nd Year Rs.60,000 Profit
3rd Year Rs.10,000 Loss
4th Year Rs.60,000 Profit
5th Year Rs.50,000 Profit
6th Year Rs.72,000 Profit
(b) Average Capital Employed is Rs2,00,000
( c) Rate of Normal Profit is 15%
Find out the value of goodwill on the basis of:
(i) 4 years’ purchase of average profits
(ii) 4 years’ of super profits
(iii) Capitalisation of Super profits
Answers
Answer:
Average Profit = ₹20,000+₹60,000-₹10,000+₹60,000+₹50,000+₹72,000/6 = ₹42,000
(i) Value of goodwill under 4 years' purchase of average profits =
₹42,000 × 4 years' purchase
₹1,68,000
Average capital employed = ₹2,00,000
Normal rate of return =15%
Hence, Normal profit =
₹2,00,000 × 15/100 = ₹30,000
Therefore,
Super Profit = Average Profit - Normal Profit
= ₹42,000 - ₹30,000
= ₹12,000
(ii) Value of goodwill under 4 years' purchase of super profit =
₹12,000 × 4 years purchase
₹48,000
(iii) Value of goodwill under capitalisation of super profit =
₹12,000 × 100/15 = ₹80,000
(iv) Value of goodwill under capitalisation of average Profit = ₹42,000 × 100/15 - ₹2,00,000
₹2,80,000 - ₹2,00,000
₹80,000
Explanation:
{Adding all profits/losses}:- 2,52,000/6 = 42,000(Avg )
i) avg. profit= 42,000×4=1,68,000
ii) to find super profit is equal to
>normal profit:- 30,000 (2,00,000×15/100)
>super profit:- 42,000 - 30,000 =12,000
>goodwill 12,000 x 4 = 48,000
iii) 12,000 × 100/15= 80,000