Question

Ayub and Amit are partners in a firm and they admit Jaspal into partnership w.e.f. $1^{st}$April,2018. The agreed to value goodwill at $3$ years purchase of Super Profit Method for which they decided to average profit of last $4$ years. The profits for the last $5$ years were:

Year Ended	Net Profit
${31}^{st}$March,2014	$1,50,000$
${31}^{st}$March, 2015	$1,80,000$
${31}^{st}$March, 2016	$1,00,00$(Including abnormal loss of Rs. $1,00,000$)
${31}^{st}$March, 2017	$2,60,000$(Including abnormal gain (point)of Rs.$40,000$)
${31}^{st}$March, 2018	$2,40,000$

The firm has total assets of Rs. $20,00,000$ and Outside Liabilities of Rs. $5,00,000$ as on that date. Normal Rate of Return in similar business is $10$.
Calculate value of goodwill.

Answer 1

Step 1: Calculation of Capital Employed:

Capital Employed= total assets- external liabilities

= 2000000- 500000

= 1500000

Step 2: Calculation of Normal Profit:

Normal Profit= 1500000 * [10/100]

= 150000

Step 3: Calculation of Average Profit:

Average Profit= [150000+180000+200000+220000+240000]/5

= 198000

Step 4: Calculation of Super Profit:

Super Profit= 198000- 150000

= 48000

Step 5: Calculation of goodwill:

Goodwill= 48000* 3

= 144000