Question

Rajan and Rajani are partners in a firm. Their capitals were Rajan ₹ 3,00,000; Rajani ₹ 2,00,000. During the year 2017-18, the firm earned a profit of ₹ 1,50,000. Calculate the value of goodwill of the firm by capitalisation of super profit assuming that the normal rate of return is 20%.

Answer 1

$$\begin{gathered} \mathrm{Goodwill}=\mathrm{Super}\mathrm{Profits}\times \frac{100}{\mathrm{Nominal}\mathrm{Rate}\mathrm{of}\mathrm{Return}} \\ \mathrm{Super}\mathrm{Profits}=\mathrm{Average}\mathrm{Profit}-\mathrm{Normal}\mathrm{Profit} \\ \mathrm{Average}\mathrm{Profit}=1,50,000\left(\mathrm{Given}\right) \\ \mathrm{Normal}\mathrm{Profit}=\mathrm{Capital}\mathrm{Employed}\times \mathrm{Normal}\mathrm{Rate}\mathrm{of}\mathrm{Return} \\ \mathrm{Normal}\mathrm{Profit}=(3,00,000+2,00,000)\times 20\%=1,00,000 \\ \mathrm{Super}\mathrm{Profit}=1,50,000-1,00,000=50,000 \\ \mathrm{Goodwill}=50,000\times \frac{100}{20}=\mathrm{Rs}2,50,000 \end{gathered}$$