Maira and Shreya were partners in a firm. They earned an average profit of rupee 2,00,000 during the last few years. The normal rate of profit in the similar type of business is 10%. The value of assets and liabilities of the business were rupee 18,00,000 and rupee 3,00,000 respectively. Calculate the value of goodwill of the firm by super profit method if it is valued at 3 years purchase of super profit.
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Solution and Explanation
To calculate goodwill using the super profit method, follow these
steps: 1. Calculate the capital employed: \[ {Capital Employed} = {Assets} - {Liabilities} = rupee 18,00,000 - rupee 3,00,000 = rupee 15,00,000 \]
2. Calculate the normal profit: \[ {Normal Profit} = {Capital Employed} \times {Normal Rate of Profit} \] \[ {Normal Profit} = rupee 15,00,000 \times \frac{10}{100} = rupee 1,50,000 \]
3. Calculate the super profit: \[ {Super Profit} = {Average Profit} - {Normal Profit} \] \[ {Super Profit} = rupee 2,00,000 - rupee 1,50,000 = rupee 50,000 \]
4. Calculate the goodwill: \[ {Goodwill} = {Super Profit} \times {Number of Years of Purchase} \] \[ {Goodwill} = rupee 50,000 \times 3 = rupee 1,50,000 \]
Final Answer Goodwill of the firm is rupee 1,50,000.
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