Practicing Success
Read the following information and answer the following question. A and B are partners sharing profits equally. Average capital employed of the firm is ₹10,00,000. The normal rate of return is 11%. Salary to each partner for his service to be treated as a charge on profit- 30,000 per year. The asset of the firm excluding goodwill is 11,00,000 and liabilities 1,00,000. The profit of the firm is as follows- |
Calculate goodwill at 2 years purchase of average profit? |
₹1,90,000 ₹2,60,000 ₹3,60,000 ₹1,30,000 |
₹2,60,000 |
The correct answer is option 2- ₹2,60,000. Average profit = Profits of year (2016 + 2017 + 2018)/Total no of years Average normal profit = 1,90,000- salary of both partners i.e., 60,000 GOODWILL = Average normal profit x No of years purchase |