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Question 10 Chapter 3 of Class 12 Part – 1 Usha Publication
10. (Super Profit Method) A partnership firm earned net profits during the last three years as follows:
| Year | Profit/Loss |
| I | 17,000 |
| II | 20,000 |
| III | 23,000 |
The capital investment in the firm throughout the above mentioned period has been Rs.80,000. Having regard to the risk involved, 15% is considered to be a fair return on the capital.
Calculate the value of goodwill on the basis of 2 years purchase of average super profits earned during the above mentioned three years.
| Super Profit | = | Actual average Profit - Normal Profit |
| Average Profit | = | Total Profit for past given years |
| Number of years | ||
| = | 17,000 + 20,000 + 23,000 | |
| 3 | ||
| = | 60,000 | |
| 3 | ||
| = | 20,000 |
| Normal Profit | = | Capital Employed | X | Normal Rate of Return |
| 100 | ||||
| = | 80,000 | X | 15 | |
| 100 | ||||
| = | 12,000 |
| Super Profit | = | Average Profit - Normal Profit |
| = | 20,000 - 12,000 | |
| = | 8,0000 | |
| Number of years’ purchase | = | 2 |
| Goodwill | = | Super Profit X Number of years’ purchase |
| Goodwill | = | 8,000 X 2 |
| Goodwill | = | 16,000 |
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Accounting & Commerce Educator
Sarbjit Singh holds a B.Com and M.Com degree and has over 12 years of teaching experience in double entry bookkeeping, financial accounting, and business studies.
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