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 goodwill of the firm was to be valued at four year's purchase of super profits. Balance Sheet of the firm on Saurabh's admission was as follows: The normal rate of return is 12% per annum. Average profit of the firm for the last four years was Rs 30,000. Calculate Saurabh's share of goodwill.

Amit and Kartik are partners sharing profits and losses equally. They

1.	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 goodwill of the firm was to be valued at four year's purchase of super profits. Balance Sheet of the firm on Saurabh's admission was as follows: The normal rate of return is 12% per annum. Average profit of the firm for the last four years was Rs 30,000. Calculate Saurabh's share of goodwill.
Answer» Solution :AVERAGE Profit = Rs 30,000 Capital Employed or Net Assets = All assets (other than GOODWILL, fictitious assets and non-trade INVESTMENTS) at their current values less Outsiders' liabilities = Rs 1.90,000- Rs 25,000 - Rs 5,000 = Rs 1,60,000 Normal Profit = Average Capital Employed `xx` Normal Rate of Return /100 `=Rs 1,60,000xx12//100=Rs19,200` Super Profit = Average Profit - Normal Profit `=Rs30,000 - Rs19,200 = Rs 10,800` Goodwill = Super Profit `xx` No. of Years' Purchase `=Rs 10,800xx4=Rs43,200` SAURABH's share of Goodwill `=Rs 43,200xx1//3=Rs14,400.`

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