Question

Raman and Daman are partners sharing profits in the ratio of 60 : 40 and for the last four years they have been getting annual salaries of ₹ 50,000 and ₹ 40,000 respectively. The annual accounts have shown the following net profit before charging partners' salaries:
Year ended 31st March, 2017 − ₹ 1,40,000; 2018 − ₹ 1,01,000 and ​2019 − ₹ 1,30,000.
​On 1st April, 2019, Zeenu is admitted to the partnership for 1/4th share in profit (without any salary). Goodwill is to be valued at four years' purchase of weighted average profit of last three years (after partners' salaries); Profits to be weighted as 1 : 2 : 3, the greatest weight being given to the last year. Calculate the value of Goodwill.

Answer 1

Year	Profits before charging Salary (₹)	Profits after charging Salary (₹)	Weights	Weighted Profits (₹)
31st March, 2017	1,40,000	1,40,000- 90,000= 50,000	1	50,000
31st March, 2018	1,01,000	1,01,000- 90,000= 11,000	2	22,000
31st March, 2019	1,30,000	1,30,000- 90,000= 40,000	3	1,20,000
Total			6	1,92,000

Weighted Average Profits = `( "Total of Weighted Profits"/"Total Weights")` 
= Rs. `(1,92,000 )/6`

= Rs. 32,000

Goodwill = Weighted Average Profits x No. of years of Purchase

= Rs. ( 32,000 x 4 ) = Rs. 1,28,000.