Radhika and Raman are the partners in a firm sharing Profits in the ratio of 7 : 3. They admitted Kamal as a new partner for 1/10th 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 earned 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
Normal profit:
= ₹17,50,000 × 15/100
= ₹2,62,500
Super profit:
= ₹4,50,000 − ₹2,62,500
= ₹1,87,500
Goodwill of the firm:
= ₹1,87,500 × 3
= ₹5,62,500
Kamal’s premium for goodwill (1/10 share):
= ₹5,62,500 × 1/10
= ₹56,250