Sarthaks Test
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A and B are partners sharing profits in the ratio of 3:2. They decided to admit C as a partner from, 1st April, 2016 on the following terms:

i. C will be given 2/5th share of the profit.

ii. Goodwill of the firm will be valued at two years’ purchase of three years’ normal average profits of the firm. 

Profits of the previous three years ended 31st March were:

2016- Profit Rs.30,000 (after debiting loss of stock by fire Rs.40,000).

2015 – Loss Rs.80,000 (includes voluntary retirement compensation paid 1, 10,000).

2014 – Profit Rs.1,10,000 (including a profit of 30,000 on the sale of fixed assets). You are required to value the goodwill.

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Goodwill = normal Average profit x number of years' purchase

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