Question

R, J & D are the partners sharing profits in the ratio $7:5:4$. D died on $30$th June, $2015$. It was decided to value the goodwill on the basis of $3$ year's purchase of last 5 years average profits. It the profits are $Rs.29,600$; $Rs.28,700$; $Rs.28,900$; $Rs.24,000$ & $Rs.26,800$. What will be D's share of goodwill?

• A. $Rs.20,700$
• B. $Rs.27,600$
• C. $Rs.82,800$
• D. $Rs.27,000$

Answer 1

Answer: (A)

$Rs.20,700$

Old ratio (R, J and D) = 7 : 5 : 4

Calculation of goodwill :

1. Average profit = (29600 + 28700 + 28900 + 24000 + 26800) /5

= 138000/5

= 27600

2. Goodwill = Average profit * No. of year's purchase

= 27600 * 3

= 82800

D's share of goodwill = Total goodwill * D's share

= 82800 * (4/16)

= 20700