Question

The total capital of the firm of Sakshi, Mehak and Megha is ₹ 1,00,000 and the market rate of interest is 15%. The net profits for the last 3 years were ₹ 30,000; ₹ 36,000 and ₹ 42,000. Goodwill is to be valued at 2 years purchase of the last 3 years super profits. Calculate the goodwill of the firm.

Answer 1

Explanation:

Working Notes:

Goodwill = $Super Profit \times Number of Years' Purchase$

Super Profit = Average Profit-Normal Profit Average Profits

$=\frac{Total Profits}{Number of Years}$

= $\frac{30,000+36,000+42,000}{3}=\frac{1,08,000}{3}=36,000$

Normal Profit =  $Capital Employed \times Normal Rate of Return$

= $1,00,000 \times \frac{15}{100}=15,000$

Super Profit  =36,000-15,000=21,000$

Goodwill  = $21,000 \times 2=\mathbf{} 42,000$