16 :- Amit and Kartik are partners sharing profits and losses equally. They decided to admit Saurabh for an equal share in the profits. For this purpose, the goodwill of the firm was to be valued at four years’ purchase of super profits.
The normal rate of return is 12% p.a. Average profit of the firm for the last four years was Rs 30,000. Calculate Saurabh’s share of goodwill.
Solution :-
Calculation of Normal profit
Normal profit = Capital employed x Normal rate of return
Capital employed = Partner’s capital + Reserve
= 1,40,000 + 20,000
= Rs 1,60,000
Normal profit = 1,60,000 x 12%
= Rs 19,200
Super profit = Average profit – Normal profit
= 30,000 – 19,200
= Rs 10,800
Calculation of goodwill
Goodwill = Super profit x No. of years purchased
= 10,800 x 4
= Rs 43,200
Saurabh’s share of goodwill = Total goodwill x His share
= 43,200 x 1/3
= Rs 14,400