Question

$X$ and $Y$ are partners sharing profit and losses in the ratio $3:2$. They admit $Z$ into partnership for $1/4^{th}$ share in goodwill. $Z$ brings in his goodwill in cash. Goodwill for this purpose is to be calculated at two years purchase of the average normal profit of past three years. Profit of the last three years ended ${31}^{st}$March, were:
2016--Profit Rs.$50,000$(including profit on sale of asset Rs. $5,000$)
2017--Loss rs.$20,000$ (including loss by fire Rs.$30,000$).
2018--Profit Rs.$70,000$(including insurance claim received rs. $18,000$ and interest on investment and Dividend receive Rs. $8,000$).
Calculate value of goodwill. Also, calculate goodwill brought in by $Z$.

Answer 1

Step 1:

Calculation of Average Profit:

2016-- 50000-5000= 45000

2017-- (20000)+30000= 10000

2018-- 70000-(18000+8000)= 44000

Average Profit= [45000+10000+44000]/ 3

= 33000

Step 2:

Calculation of Goodwill:

Goodwill= 33000* 2

= 66000

Step 3:

Goodwill brought in Z= 66000/ 4

= 16500