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✦ FREE LEARNING — CLASS 11 & 12 — CBSE · PSEB — ACCOUNTS · ECONOMICS · BST ✦
Akshay and Amit are partners in a firm and they admit Jaspal into partnership w.e.f. 1st April, 2025. They agreed to value goodwill at 3 years’ purchase by the Super Profit Method, for which they decided to take the average profit of the last 5 years. The profits for the last 5 years were: year ended 31st March, 2021 ₹1,50,000; 2022 ₹1,80,000; 2023 ₹1,00,000 (including an abnormal loss of ₹1,00,000); 2024 ₹2,60,000 (including an abnormal gain of ₹40,000); 2025 ₹2,40,000. The firm has total assets of ₹20,00,000 and outside liabilities of ₹5,00,000 as on that date. The normal rate of return in a similar business is 10%. Calculate the value of goodwill.
Calculation of Normal Profit
| Year ended | Adjustment | Normal Profit (₹) |
|---|---|---|
| 31st March, 2021 | – | 1,50,000 |
| 31st March, 2022 | – | 1,80,000 |
| 31st March, 2023 | 1,00,000 + 1,00,000 (abnormal loss) | 2,00,000 |
| 31st March, 2024 | 2,60,000 – 40,000 (abnormal gain) | 2,20,000 |
| 31st March, 2025 | – | 2,40,000 |
| Total | 9,90,000 | |
Average Profit = ₹9,90,000 / 5 = ₹1,98,000.
Capital Employed = ₹20,00,000 – ₹5,00,000 = ₹15,00,000; Normal Profit = ₹15,00,000 × 10% = ₹1,50,000.
Super Profit = ₹1,98,000 – ₹1,50,000 = ₹48,000.
Goodwill = ₹48,000 × 3 = ₹1,44,000.
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.
This guide covers "T.S. Grewal Class 12 Chapter 2 Q.24 - Nature and Valuation of Goodwill", focusing on key definitions, step-by-step concepts, applications, and revision guidelines relevant to Chapter 2 - Nature and Valuation of Goodwill.
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