Question

Mahesh and Umesh are partners in a partnership firm carrying on business for the last 10 years.

You are required to find out the value of goodwill which is to be valued at `(2)1/2` years purchase of last 6 years’ average profit.

The profit and losses for the six years are:

Year	Amount (Rs)
2003 – 2004	1,50,000 (Profit)
2004 – 2005	1,00,000 (Loss)
2005 – 2006	4,50,000 (Profit)
2006 – 2007	5,00,000 (Profit)
2007 – 2008	50,000 (Loss)
2008 – 2009	5,50,000 (Profit)

Answer 1

Calculation of Average Profit

Average profit = `\text{Total profit}/text\{Number of Years}`

=`(1,50,000-1,00,000+4,50,000+5,00,000-50,000+5,50,000)/6=Rs2,50,000`

Calculation of Goodwill

`\text{Goodwill of the firm}=\text{Average profit }xx\text{Number of the years'purchase}`

`=2,50,000xx(2)1/2= Rs\ 6,25,000`