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Question
The capital of a Partnership firm is Rs. 3,00,000. Profit for the last 4 years was Rs. 32,500, Rs 35,000, Rs. 36,000 and Rs. 39,000. The reasonable return on the capital employed is 11%. Calculate the value of goodwill on the basis of 3 years purchases of super profit.
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Solution
Calculation of Average Profit
\[\begin{array}{ccl}\text{Average Profit} = \frac{\text{Total Profits}}{\text{Number of Years}} \\ = \frac{32, 500 + 35, 000 + 36, 000 + 39, 000}{4} = \text{Rs 35,625}\end{array}\]
Calculation of Normal Profit
\[\begin{array}{ccl}\text{Average Profit} = \frac{\text{Total Profits}}{\text{Number of Years}} \\ = \frac{32, 500 + 35, 000 + 36, 000 + 39, 000}{4} = \text{Rs 35,625}\end{array}\]
Calculation of Super Profit
\[\begin{array}{ccl}\text{Super Profit} = \text{Average Profit} - \text{Normal Profit} \\ = 35,625 - 33,000 = Rs 2,625\end{array}\]
Calculation of Goodwill
\[\begin{array}{ccl}\text{Super Profit} = \text{Average Profit} - \text{Normal Profit} \\ = 35,625 - 33,000 = Rs 2,625\end{array}\]
