Question 26 Chapter 3 of +2-A
Table of Contents
26. A partnership firm earned net profits during the last three years ended 31st March, as follows:
2017 − 17,000; 2018 − 20,000; 2019 − 23,000.
The capital investment in the firm throughout the above-mentioned period has been 80,000. Having regard to the risk involved, 15% is considered to be a fair return on the capital. Calculate value of goodwill on the basis of two years’ purchase of average super profit earned during the above-mentioned three years.
The solution of Question 26 Chapter 3 of +2-A:
| Super Profit | = | Actual average Profit- Normal Profit |
| Actual 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 | = | 20,000 – 12,000 |
| = | 8,000 |
Number of years’ purchase = 2
| Goodwill | = | Super Profit X number of years of purchase |
| Goodwill | = | 8,000 X 2 |
| Goodwill | = | 16,000 |
T.S. Grewal’s Double Entry Book Keeping +2 (Vol. I: Accounting for Not-for-Profit Organizations and Partnership Firms)
- Chapter No. 1 – Financial Statement of Not-For-Profit Organisations
- Chapter No. 2 – Accounting for Partnership Firms – Fundamentals
- Chapter No. 3 – Goodwill: Nature and Valuation
- Chapter No. 4 – Change in Profit-Sharing Ratio Among the Existing Partners
- Chapter No. 5 – Admission of a Partner
- Chapter No. 6 – Retirement/Death of a Partner
- Chapter No. 7 – Dissolution of a Partnership Firm
T.S. Grewal’s Double Entry Book Keeping (Vol. II: Accounting for Companies)
- Chapter No. 8 – Company Accounts – Accounting for Share Capital
- Chapter No. 9 – Company Accounts – Issue of Debentures
- Chapter No. 10 – Redemption of Debentures
T.S. Grewal’s Double Entry Book Keeping (Vol. II: Accounting for Companies)
- Chapter No. 1 – Financial Statements of a Company
- Chapter No. 2 – Financial Statement Analysis
- Chapter No. 3 – Tools of Financial Statement Analysis – Comparative Statements and Common- Size Statements
- Chapter No. 4 – Accounting Ratios
- Chapter No. 5 – Cash Flow Statement
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