Question

A and B are partners sharing profits and losses in the ratio of 5:3.On first 1st April,2018, C is admitted to the partnership for 1/4th share of profits. For this purpose, goodwill is to be valued at two years purchase of last three years profit (after allowing partners remuneration).Profits to be weighted 1:2:3,the greatest weight being given to last year. Net profit before partners remuneration were 2015-16 : Rs. 2,00,000; 2016-17: Rs 2,30,000; 2017-18 :Rs.2,50,000.The remuneration of the partners is estimated to be RS. 90,000 p.a.Calculate amount of goodwill.

Answer 1

Calculation of profits

$2015-16(2,00,000-90,000)=1,10,000$

$2016-17(2,30,000-90,000)=1,40,000$

$2017-18(2,50,000-90,000)=1,60,000$

$\therefore$

Year	Profits	Weights	Product
2016	1,10,000	1	1,10,000
2017	1,40,000	2	2,80,000
2018	1,60,000	3	4,80,000
Total		6	8,70,000

$therefore$ Average profits $=\frac{8,70,000}{6}$

$=1,45,000$

$\therefore$ Goodwill $=1,45,000\times 2$ years purchase

$=Rs.2,90,000$