Question 31 Chapter 3 of +2-A
Table of Contents
31. Capital of the firm of Sharma and Verma is 2,00,000 and the market rate of interest is 15%. Annual salary to partners is 12,000 each. The profits for the last three years were 60,000; 72,000 and 84,000. Goodwill is to be valued at 2 years’ purchase of the last 3 years’ average super profit.
Calculate the goodwill of the firm.
The solution of Question 31 Chapter 3 of +2-A:
| Year |
Profit before Partners’ Remuneration A |
Partners’ |
Actual Profit after Remuneration (C = A – B) |
| 2017 | 60,000 | 24,000 | 36,000 |
| 2018 | 72,000 | 24,000 | 48,000 |
| 2019 | 84,000 | 24,000 | 60,000 |
| Total | 1,44,000 | ||
| Super Profit | = | Actual average Profit- Normal Profit |
| Actual average Profit | = | Total Profit for past given years |
| = | Number of years | |
| = | 1,44,000 | |
| 3 | ||
| = | 48,000 |
| Normal Profit | = | Capital Employed | X | Normal Rate of Return |
| 100 |
| = | 2,00,000 | X | 15 | |
| 100 | ||||
| = | 30,000 |
| Super Profit | = | 48,000- 30,000 |
| = | 18,000 |
Number of years’ purchase = 2
| Goodwill | = | Super Profit X number of years of purchase |
| Goodwill | = | 18,000 x 2 |
| Goodwill | = | 36,000 |
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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