# Mahesh and Umesh Are Partners in a Partnership Firm Carrying on Business for the Last 10 Years. - Book Keeping and Accountancy

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)

#### Solution

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

Concept: Admission of a Partner - Treatment of Goodwill
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