A partnership firm earned net profits during the past three years as follows: Capital investment in the firm throughout the above-mentioned period has been ₹ 4,00,000. Having regard to the risk involved, 15% in considered to be a fair return on the capital. The remuneration of the partners during this period is estimated to be ₹ 1,00,000 p.a. Calculate value of goodwill on the basis of two years purchase of average super profit earned during the above-mentioned three years.

A partnership firm earned net profits during the past three years as f

1.	A partnership firm earned net profits during the past three years as follows: Capital investment in the firm throughout the above-mentioned period has been ₹ 4,00,000. Having regard to the risk involved, 15% in considered to be a fair return on the capital. The remuneration of the partners during this period is estimated to be ₹ 1,00,000 p.a. Calculate value of goodwill on the basis of two years purchase of average super profit earned during the above-mentioned three years.
Answer» tion:Goodwill = Super Profit x Number of Years' Purchase AVERAGE Actual Profit 17,000 + 20,000 + 23,000 60,000 = Rs 20,000 Fair Rate of Retern NORMAL Profit = Capital EMPLOYED x 100 = 80,000 x- 100 15 Rs12,000 Super Profit = Average Actual Profit-Normal Profit = 20,000 12,000 = Rs8,000 Number of years' purchase = 2 : Goodwill = 8,000x 2 = Rs16,000

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