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A partnership firm earned net profits during the past three years as follows: Year ended 31st March, 2019 31st March, 2018 31st March, 2017 Net Profit (₹) 2,30,000 2,00,000 1,70,000 Capital investment in the firm throughout the above-mentioned period has been ₹ 4,00,000. Having regard to the risk involved, 15% is 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» A partnership firm earned net profits during the past three years as follows:















Year ended 31st March, 2019 31st March, 2018 31st March, 2017
Net Profit (₹) 2,30,000 2,00,000 1,70,000

Capital investment in the firm throughout the above-mentioned period has been ₹ 4,00,000. Having regard to the risk involved, 15% is 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.


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