Question

Calculate the value of goodwill of the firm of 2 partners 

(a) At the 3 years purchase of average profits 

(b) At 3 years purchase of super profits 

(c) On the basis of capitalisation of super profits 

(d) On the basis of capitalisation of average profits

(i) Average capital employed Rs. 7,00,000 

(ii) Net trading results of the firm 2014 – Rs. 1,47,600 2015 – Loss Rs. 1,48,100. Profit for 2016 – Rs. 4,48,700 

(iii) Rate of interest on capital @ 18% 

(iv) Remunuration Rs. 500/- per month

Answer 1

Calculation of Average profit and super profit 

Total profit = Rs. 1,47,600 – Rs. 1,48,100 + Rs. 4,48,700 

= Rs. 4,48,200 

Average profit = (Total profit)/(Number of years) 

= 4,48,200/3

= Rs. 1,49,400 

Less: Remunration of 2 partner (2 x 500 x 1/2) 

Less: Normal profit = Capital employed x (Normal rate)/100

= 7,00,000 x 18/100

= Rs. 1,26,000 

Super profit = Rs. 11,400 

(a) Average profit =  Average profit x No. of year purchase 

= Rs. 1,37,400 x 3 

= Rs. 4,12,200 

(b) Super profit =  Super profit x No. of year purchase 

= Rs. 11,400 x 3 

= Rs. 34,200 

(c) Capitalisation of super profit = (Super profit)/(Normal rate of return) x 100

= 11,400/18 x 100

= Rs. 63,333

(d) Capitalization of average profit = (Average maintainable profit)/(Normal rate of return) x 100

= 1,37,400/100 x 100

= Rs. 7,63,333

(-) Actual capital employed = Rs. 7,00,000 

Goodwill = Rs. 63,333