Question 27 Chapter 3 of +2-A
Table of Contents
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.
The solution of Question 27 Chapter 3 of +2-A:
| 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 |
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
Check out T.S. Grewal +2 Book 2020@ Official Website of Sultan Chand Publication
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