Question

Rajan and Rajani are partners in a firm. Their capitals were Rajan Rs. 3,00,000; Rajani Rs. 2,00,000. During the year 2002, the firm earned a profit of Rs.1,50,000. Calculate the value of goodwill of the firm assuming that the normal rate of return is 20%.

Answer 1

Capital employed = Rajan's capital + Rajani's capital

= 3,00,000 + 2,00,000 = 5,00,000

Capitalised value = $\text{Actual profit}\times \frac{100}{\text{Normal Rate of Return}}$

= 1,50,000 X 100/20

= 7,50,000

Goodwill = Capitalised value - Capital employed

= 7,50,000 - 5,00,000

= 2,50,000