Question

Amit and Sumit were partners in a firm with capitals of ₹ 3,00,000 and ₹ 2,00,000 respectively. The normal rate of return was 20% and the capitalised value of average profits was ₹ 8,50,000. The goodwill of the firm by capitalisation of average profits method will be ______.

Options

• ₹ 10,00,000

• ₹ 1,50,000

• ₹ 3,50,000

• ₹ 5,00,000

Answer 1

Amit and Sumit were partners in a firm with capitals of ₹ 3,00,000 and ₹ 2,00,000 respectively. The normal rate of return was 20% and the capitalised value of average profits was ₹ 8,50,000. The goodwill of the firm by capitalisation of average profits method will be ₹ 3,50,000.

Explanation:

Given:

Capital of Amit = ₹ 3,00,000

Capital of Sumit = ₹ 2,00,000

Total Capital = ₹ 5,00,000

Normal Rate of Return = 20%

Capitalised Value of Average Profits = ₹ 8,50,000

Formula:

Goodwill = Capitalised Value − Actual Capital Employed

= 8,50,000 − 5,00,000 

= ₹ 3,50,000