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Question
Raman and Daman are partners sharing profits in the ratio of 60 : 40 and for the last four years they have been getting annual salaries of ₹ 50,000 and ₹ 40,000 respectively. The annual accounts have shown the following net profit before charging partners' salaries:
Year ended 31st March, 2017 − ₹ 1,40,000; 2018 − ₹ 1,01,000 and 2019 − ₹ 1,30,000.
On 1st April, 2019, Zeenu is admitted to the partnership for 1/4th share in profit (without any salary). Goodwill is to be valued at four years' purchase of weighted average profit of last three years (after partners' salaries); Profits to be weighted as 1 : 2 : 3, the greatest weight being given to the last year. Calculate the value of Goodwill.
Solution
|
Year |
Profits before charging Salary (₹) |
Profits after charging Salary (₹) |
Weights |
Weighted Profits (₹) |
|
31st March, 2017 |
1,40,000 |
1,40,000- 90,000= 50,000 |
1 |
50,000 |
|
31st March, 2018 |
1,01,000 |
1,01,000- 90,000= 11,000 |
2 |
22,000 |
|
31st March, 2019 |
1,30,000 |
1,30,000- 90,000= 40,000 |
3 |
1,20,000 |
|
Total |
6 |
1,92,000 |
||
Weighted Average Profits = `( "Total of Weighted Profits"/"Total Weights")`
= Rs. `(1,92,000 )/6`
= Rs. 32,000
Goodwill = Weighted Average Profits x No. of years of Purchase
= Rs. ( 32,000 x 4 ) = Rs. 1,28,000.
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