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 the admission of Vansh was as follows: \begin{center} \begin{tabular}{|l|r|l|r|} Liabilities & Amount (\rupee) & Assets & Amount (\rupee)
Capitals: & & Machinery & 75,000
Aayush & 90,000 & Furniture & 15,000
Krish & 50,000 & Stock & 30,000
\cline{1-2} General Reserve & 20,000 & Debtors & 20,000
Loan & 25,000 & Cash & 50,000
Creditors & 5,000 & &
Total & 1,90,000 & Total & 1,90,000
\end{tabular} \end{center} The normal rate of return is \(12\%\) per annum. The average profit of the firm for the last four years was \rupee30,000. Calculate Vansh's share of Goodwill.

Hint:

For Goodwill calculations, always identify normal profit, super profit, and the years' purchase to value goodwill accurately.

Answer 1

1. Normal Profit: \[ \text{Normal Profit} = \text{Capital Employed} \times \text{Normal Rate of Return} = \rupee1,90,000 \times 12\% = \rupee22,800. \] 2. Super Profit: \[ \text{Super Profit} = \text{Average Profit} - \text{Normal Profit} = \rupee30,000 - \rupee22,800 = \rupee7,200. \] 3. Goodwill: \[ \text{Goodwill} = \text{Super Profit} \times \text{Years' Purchase} = \rupee7,200 \times 4 = \rupee28,800. \] 4. Vansh’s share of Goodwill: \[ \text{Vansh’s Share} = \frac{\text{Goodwill}}{\text{Total Partners}} = \rupee28,800 \times \frac{1}{3} = \rupee9,600. \]