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: \[ \begin{array}{|c|c|c|} Liabilities & Amount (\rupee) & Assets & Amount (\rupee)
Aayush’s Capital & 90,000 & Machinery & 75,000
Krish’s Capital & 50,000 & Furniture & 15,000
General Reserve & 20,000 & Stock & 30,000
Loan & 25,000 & Debtors & 50,000
Creditors & 5,000 & Cash & 20,000
Total & 1,90,000 & Total & 1,90,000
\end{array} \] The normal rate of return is 12\% per annum. Average profit of the firm for the last four years was \rupee 30,000. Calculate Vansh’s share of Goodwill.

Hint:

Goodwill is shared based on the new partner’s share in the firm. Super profits measure the excess of actual profits over normal profits.

Answer 1

Step 1: Calculate Normal Profit: \[ \text{Normal Profit} = \text{Capital Employed} \times \text{Normal Rate of Return} \] \[ \text{Capital Employed} = \rupee 75,000 + \rupee 15,000 + \rupee 30,000 + \rupee 50,000 + \rupee 20,000 - (\rupee 25,000 + \rupee 5,000) = \rupee 1,60,000 \] \[ \text{Normal Profit} = \rupee 1,60,000 \times 12\% = \rupee 19,200 \] Step 2: Calculate Super Profit: \[ \text{Super Profit} = \text{Average Profit} - \text{Normal Profit} \] \[ \text{Super Profit} = \rupee 30,000 - \rupee 19,200 = \rupee 10,800 \] Step 3: Value of Goodwill: \[ \text{Goodwill} = \text{Super Profit} \times \text{Years' Purchase} \] \[ \text{Goodwill} = \rupee 10,800 \times 4 = \rupee 43,200 \] Step 4: Vansh’s Share of Goodwill: \[ \text{Vansh’s Share} = \frac{1}{3} \times \rupee 43,200 = \rupee 14,400 \]