Question

From the following information, calculate goodwill by Capitalisation of Super profit method for a firm run by Akshay and Baldev:

Particulars	₹
Akshay’s Capital A/c	1,20,000
Baldev’s Capital A/c	1,00,000
Akshay’s Current A/c	20,000
Baldev’s Current A/c (Dr.)	10,000
General Reserve	20,000
Advertisement Suspense A/c	10,000

Other information:

1. Normal rate of return is 10% p.a.
2. Trading profits for the preceding four years are as follows:
   • 2021-2022 - ₹ 40,000
   • 2022-2023 - ₹ 45000
   • 2023-2024 - ₹ 50,000 (including loss by theft 5,000)
   • 2024-2025 - ₹ 60000 (excluding depreciation on machinery ₹ 6,000)

Answer 1

Total Profit for four years = 40,000 + 45,000 + 55,000 + 54,000

= ₹ 1,94,000

Average Profit = `"Total Profit"/"Number of Years"`

= `(1,94,000)/4`

= ₹ 48,500

Capital Invested = 1,20,000 + 1,00,000 + 20,000 – 10,000 + 20,000 – 10,000

= ₹ 2,40,000

Normal profit = `("Capital invested" xx "Normal Rate of Return")/100`

= `(2,40,000 xx 10)/100`

= ₹ 24,000

Super profit = Average Profit − Normal Profit

= 48,500 − 24,000

= ₹ 24,500

Goodwill by capitalisation of super profit = `"Super profit"/"Normal Rate of Return" xx 100`

= `(24,500)/10 xx100`

= ₹ 2,45,000

∴ The value of goodwill calculated by the Capitalisation of Super Profit method is ₹ 2,45,000.