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Question
Aayush and Krish are partners sharing profits and losses equally. They decided to admit Vansh for an equal share in the profits. For this purpose, the goodwill of the firm was to be valued at four years purchase of super profits.
The balance sheet of the firm on 31.3.2023 before admission of Vansh was as follows:
| Balance Sheet of Aayush and Krish as on 31.3.2023 | ||||
| Liabilities | Amount (₹) |
Amount (₹) |
Assets | Amount (₹) |
| Capitals: | Machinery | 75,000 | ||
| Aayush | 90,000 | 1,40,000 | Furniture | 15,000 |
| Krish | 50,000 | Stock | 30,000 | |
| General Reserve | 20,000 | Debtors | 20,000 | |
| Loan | 25,000 | Cash | 50,000 | |
| Creditors | 5,000 | |||
| 1,90,000 | 1,90,000 | |||
The normal rate of return is 12% per annum. Average profit of the firm for the last four years was ₹ 30,000. Calculate Vansh's share of Goodwill.
Solution
Super profit = Average profit − Normal profit
Normal profit = Capital employed × NRR
= (1,40,000 + 20,000 + 25,000) × 12%
= ₹ 22,200
Super profit = 30,000 − 22,200
= ₹ 7,800
Goodwill = Super profit × No. of years of purchase
= 7,800 × 4
= ₹ 31,200
Vansh share of goodwill = 31,200 × `1/3`
= ₹ 10,400
