The capital of the firm of Anuj and Benu

10 :-  The Capital of the firm of Anuj and Benu is Rs 10,00,000 and the market rate of interest is 15%. The annual salary of the partners is Rs 60,000 each. The profit for the last three years were Rs 3,00,000; Rs 3,60,000 and Rs 4,20,000. The goodwill of the firm is to be valued on the basis of two years’ purchase of the last three years’ average super profit. Calculate the goodwill of the firm.

Solution :-

Calculation of Actual profits after salaries of partners
1^st year = 3,00,000 – (60,000 x 2) = Rs 1,80,000
2^nd year = 3,60,000 – (60,000 x 2) = Rs 2,40,000
3^rd year = 4,20,000 – (60,000 x 2) = Rs 3,00,000

Calculation of Average profit of last 3 years
Average profit = 1,80,000 + 2,40,000 + 3,00,000/3
                         = Rs 2,40,000

Calculation of Normal profit
Normal profit = Capital employed x Normal rate of return
                       = 10,00,000 x 15/100
                       = Rs 1,50,000

Calculation of Super profit
Super profit = Average profit – Normal profit
= 2,40,000 – 1,50,000
                   = Rs 90,000

Calculation of Goodwill of the firm
Goodwill = Super profit x No. of years purchased
               = 90,000 x 2
= Rs 1,80,000