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Question 27 Chapter 3 of +2-A
27. A partnership firm earned net profits during the past three years as follows:
| Year Ended | 31st March 2019 | 31st March 2018 | 31st March 2017 |
| Profit/(Loss) | 20,000 | 24,000 | 30,000 |
Capital investment in the firm throughout the above-mentioned period has been 4,00,000. Having regard to the risk involved, 15% is considered to be a fair return on the capital. The
remuneration of the partners during this period is estimated to be 1,00,000 p.a.
Calculate the value of goodwill on the basis of two years' purchase of average super profit earned during the above-mentioned three years.
| Year |
Profit before Partners’ Remuneration A |
Partners’ |
Actual Profit after Remuneration (C = A - B) |
|---|---|---|---|
| 2017 | 1,70,000 | 1,00,000 | 70,000 |
| 2018 | 2,00,000 | 1,00,000 | 1,00,000 |
| 2019 | 2,30,000 | 1,00,000 | 1,30,000 |
| Total | 3,00,000 | ||
| Super Profit | = | Actual average Profit- Normal Profit |
| Actual average Profit | = | Total Profit for past given years |
| = | Number of years | |
| = | 3,00,000 | |
| 3 | ||
| = | 1,00,000 |
| Normal Profit | = | Capital Employed | X | Normal Rate of Return |
| 100 |
| = | 4,00,000 | X | 15 |
| 100 | |||
| = | 60,000 |
| Super Profit | = | 1,00,000- 60,000 |
| = | 40,000 |
Number of years’ purchase = 2
| Goodwill | = | Super Profit X number of years of purchase |
| Goodwill | = | 40,000 X 2 |
| Goodwill | = | 80,000 |
Check out T.S. Grewal +2 Book 2020@ Official Website of Sultan Chand Publication
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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