Question

Capital of the firm of Sharma and Verma is ₹ 2,00,000 and the market rate of interest is 15%. Annual salary to partners is ₹ 12,000 each. The profits for the last three years were ₹ 60,000; ₹ 72,000 and ₹ 84,000. Goodwill is to be valued at 2 years' purchase of last 3 years' average super profit.
Calculate goodwill of the firm.

Answer 1

Goodwill = Super Profit x Number of Years' Purchase
Normal Profit = Capital Investment x `"Normal Rate of Return"/100`
= 2,00,000 x `15/100` = Rs. 30,000. 

Year	Profit before Partner’s Salary	–	Partner’s Salary	=	Actual Profit after Salary
1	60,000	–	24,000	=	36,000
2	72,000	–	24,000	=	48,000
3	84,000	–	24,000	=	60,000

Average Actual Profit after Salary to Partners = `[36,000 + 48,000 + 60,000]/3 = (1,44,000)/3`

Super Profit = Average Actual Profit after Salaries - Normal Profits
                    = 48,000 - 30,000
                    = 18,000

Number of Years' Purchase = 2

∴ Goodwill = 18,000 x 2 = Rs. 36,000.