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Super Profit Method

A partnership...

Question

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.

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Solution

Number of years’ purchase = 2

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Q. A partnership firm earned net profit during the last three years ended

31^{s t}

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2016 - Rs.

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20, 000

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year ended	$31^{s t}$ March,2018	$31^{s t}$ March,2017	$31^{s t}$ March,2016
Net Profit(Rs.)	$2, 30, 000$	$2, 00, 000$	$1, 70, 000$

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[0.88 marks]

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