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Super Profit Method

Capital of th...

Question

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 last 3 years' average super profit.
Calculate goodwill of the firm.

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Solution

Year Profit before Partner’s Salary – Partner’s Salary = Actual Profit after Salary

1 60,000 – 24,000 = 36,000

2 72,000 – 24,000 = 48,000

3 84,000 – 24,000 = 60,000

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