Question

Viraj, Harsh and Akhil are partners in a firm sharing profits and losses in the ratio of 4/9 : 1/3 : 2/9. Akhil dies on 31^st March, 2022. Viraj acquires 4/9 of Akhil's share and the balance is acquired by Harsh.

On the date of Akhil's death, it was decided to value the goodwill of the firm on the basis of two year's purchase of average super profit.

The average net profit made by the firm is ₹ 49,000 per annum.

The remuneration of the partners, considered as management cost, is estimated to be ₹ 9,000 per annum.

The total value of assets and liabilities of the firm is ₹ 2,20,000 and ₹ 80,000 respectively.
The normal rate of return in the industry is 15%.

You are required to calculate:

1. The gaining ratio of the continuing partners.
2. The value of non-purchased goodwill of the firm.

Answer 1

	Viraj	Harsh	Akhil
Profit Sharing ratio	`4/9`  :	`1/3`  :	`2/9`	= 4 : 3 : 2

(i) Akhil died on 31^st March 2022.

Viraj's gain = `2/9 xx 4/9 = 8/81`

Harsh's gain = `2/9 - 8/81 = (18 - 8)/81 = 10/81` 

Gaining ratio between Viraj and Harsh = `8/81 : 10/81 = 8 : 10 => 4 : 5`

Gaining ratio = 4 : 5

(ii) Average Net Profit = ₹ 49,000

Remuneration of Partners = ₹ 9,000

Normal Rate of Return = 15%

Actual Average Net Profit = Average Net Profit - Remuneration of Partners

= ₹ (49,000 - 9,000) = ₹ 40,000

Capital Employed = Assets - Liabilities

= 2,20,000 - 80,000

= ₹ 1,40,000

Normal Profit = `"Capital Employed" xx "Normal Rate of Return"/100`

`= 1,40,000 xx 15/100`

= ₹ 21,000

Super Profit = Actual Average Net Profit - Normal Profit

= 40,000 - 21,000

= ₹ 19,000

Goodwill = Super Profit × Number of year's purchase

= 19,000 × 2

= ₹ 38,000