Radhika and Rainan are the partners in a firm sharing Profits in the ratio of 7 : 3. They admitted Kamal as a new partner for $\frac{1}{10}th$ share. Kamal brings ₹19,75,000 as his capital and necessary share for premium for goodwill. It was agreed to value the goodwill at 3 years purchase of super Profit. During the year, the firm eamed a profit of ₹4,50,000 and capital employed ₹17,50,000. If normal rate of return is 15%, calculate the amount that Kamal should bring in for goodwill.
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → ₹56,250.
Actual profit = ₹4,50,000
Capital employed = ₹17,50,000.
Normal rate of return = 15%
Normal profit = 17,50,000 x 15/100
= 2,62,500
Super profit = Actual profit - normal profit
= 4,50,000 - 2,62,500
= 1,87,500
Goodwill = Super profit x no of years purchase
= 1,87,500 x 3
= 5,62,500
Kamal share = 1/10
Kamal share in goodwill = 5,62,500 x 1/10
= 56,250