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✦ FREE LEARNING — CLASS 11 & 12 — CBSE · PSEB — ACCOUNTS · ECONOMICS · BST ✦
Raman and Daman are partners sharing profits in the ratio of 60 : 40 and for the last four years they have been getting annual salaries of ₹50,000 and ₹40,000 respectively. The annual accounts have shown the following net profit before charging partners’ salaries: year ended 31st March, 2023 ₹1,40,000; 2024 ₹1,01,000 and 2025 ₹1,30,000. On 1st April, 2025, Zeenu is admitted to the partnership for a 1/4th share in profit (without any salary). Goodwill is to be valued at four years’ purchase of the weighted average profit of the last three years (after partners’ salaries), profits being weighted as 1 : 2 : 3, the greatest weight being given to the last year. Calculate the value of goodwill.
Calculation of Weighted Average Profit
| Year ended | Profit before Salary (₹) | Profit after Salary (₹) | Weight | Product (₹) |
|---|---|---|---|---|
| 31st March, 2023 | 1,40,000 | 50,000 | 1 | 50,000 |
| 31st March, 2024 | 1,01,000 | 11,000 | 2 | 22,000 |
| 31st March, 2025 | 1,30,000 | 40,000 | 3 | 1,20,000 |
| Total | 6 | 1,92,000 |
Weighted Average Profit = ₹1,92,000 / 6 = ₹32,000 (partners’ total salary = ₹90,000 deducted each year).
Goodwill = ₹32,000 × 4 = ₹1,28,000.
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.9 - 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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