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Question
Raju and Rinku were partners sharing profits and losses in the ratio 3 : 2. They admitted Sumit as a new partner for 1/3 share. On the date of admission Capitals of Raju and Rinku were ₹ 5,50,000 and ₹ 6,50,000 respectively, also, General Reserve of ₹ 3,00,000 and Profit and Loss (Dr.) balance of ₹ 1,00,000 were appearing in the books of accounts. Firm made an average profit of ₹ 2,40,000 during the last few years and the normal rate of earning was expected to be 12%. Calculate the Goodwill of the firm by Capitalisation Method.
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Solution
Average Profit = ₹ 2,40,000
Normal Rate of Return (NRR) = 12%
Capitalised Value = `"Average Profit" xx 100/"Normal Rate of Return"`
= `2,40,000 xx 100/12`
= ₹ 20,00,000
Capital of Partners:
Raju = ₹ 5,50,000
Rinku = ₹ 6,50,000
Total Capital of Partners = ₹ 12,00,000
Capital Employed = Total capital of Partners + General Reserve − Profit and Loss
= 12,00,000 + 3,00,000 − 1,00,000
= ₹ 14,00,000
Goodwill = Capitalised Value − Capital Employed
= 20,00,000 − 14,00,000
= ₹ 6,00,000
