Question

Rajan and Rajani are partners in a firm. Their capitals were Rajan Rs. 3,00,000; Rajani Rs. 2,00,000. During the year 2015 the firm earned a profit of Rs. 1,50,000. Calculate the value of goodwill of the firm assuming that the normal rate of return is 20%?

Answer 1

Rajan’s Capital	3,00,000
Rajni’s Capital	2,00,000
Total Capital Employed	5,00,000

Normal Rate of Return = 20%

Capitalised Valued = Actual Profit × `100/"Normal Rate of Return"`

= 1,50,000 × `100/20`
= Rs 7,50,000

Goodwill = Capitalised Value − Capital Employed
= 7,50,000 − 5,00,000
= Rs 2,50,000
Alternative Method
Normal Profit = Capital Employed × `"Normal Rate of Return"/100`
= 5,00,000 × `20/100`
= Rs 1,00,000

Super profit = Actual Profit − Normal Profit
= 1,50,000 − 1,00,000
= Rs 50,000

Goodwill = Super Profit × `100/"Normal Rate of Return"`

= 50,000 × `100/20`
= Rs 2,50,000