Question

Sana and Rajesh were partners in a firm sharing profits and losses in the ratio of 4 : 3. They admitted Sonu into partnership for \(\frac{1}{5}\) share in the profits of the firm. Goodwill of the firm was to be valued at three years’ purchase of super-profits. Average net profit of the firm was 80,000. Capital employed in the business was 2,00,000 and normal rate of return was 10%. Calculate the amount of goodwill premium brought by Sonu.

Hint:

Goodwill based on super profits \(=\) (Average Profit - Normal Profit) \(\times\) Number of Years' Purchase. Multiply this by the new partner's share to find the goodwill premium.

Answer 1

Step 1: Calculate Normal Profit:
\[ \text{Normal Profit} = \text{Capital Employed} \times \text{Normal Rate of Return} = 2,00,000 \times \frac{10}{100} = 20,000 \] Step 2: Calculate Super Profit:
\[ \text{Super Profit} = \text{Average Profit} - \text{Normal Profit} = 80,000 - 20,000 = 60,000 \] Step 3: Value of Goodwill (based on 3 years' purchase of super profit):
\[ \text{Goodwill of the Firm} = \text{Super Profit} \times 3 = 60,000 \times 3 = 1,80,000 \] Step 4: Sonu's share of goodwill (he is admitted for \( \frac{1}{5} \) share):
\[ \text{Sonu’s Premium for Goodwill} = \frac{1}{5} \times 1,80,000 = 36,000 \] Final Answer: 36,000