Partnership

Admission

Medium

Read the passage carefully and answer the next 5 questions

The books of a business showed that the firm's capital employed on December 31, 2024, Rs. 5,00,000 and the profits for the last five years were: 2020-Rs. 40,000; 2021-Rs. 50,000; 2022-Rs. 55,000; 2023- Rs.70,000 and 2024-Rs. 85,000. You are required to find out the value of goodwill based on 2 years purchase of the super profits of the business, given that the normal rate of return is 10%.

Super profit is -

Rs. 9000

Rs. 8000

Rs. 10,000

Rs. 6000

✅ Correct Option: 3

Average Profit needs to be calculated first from the profits of last 5 years:

Average Profit = $\frac{40,000 + 50,000 + 55,000 + 70,000 + 85,000}{5}$ = $\frac{3,00,000}{5}$ = Rs. 60,000

Normal Profit is calculated on the capital employed at the normal rate of return:

Normal Profit = Capital Employed × Normal Rate of Return

Normal Profit = Rs. 5,00,000 × $\frac{10}{100}$ = Rs. 50,000

Super Profit = Average Profit - Normal Profit

Super Profit = Rs. 60,000 - Rs. 50,000 = Rs. 10,000

Super profit represents the excess profit earned by the business over and above what would be considered normal for the capital employed. Here, the business earns Rs. 10,000 more than the expected return of 10% on the capital of Rs. 5,00,000.

2025: 27 May Shift 1

Das and Sinha are partners in a firm sharing profits in 4:1 ratio. They admitted Pal as a new partner for 1/4th share in the profits, which he acquired wholly from Das. The new profit sharing ratio of the partners is-

2026: 6 June Shift 1

A partner is admitted and the following steps are to be followed while calculating his share of goodwill. Arrange them in a sequence.

(A) Calculate new partner's share of goodwill

(B) Calculate total capital of the newly constituted firm

(D) Calculate goodwill of the firm

2024

Kavita and Lalita are partners, sharing profits in the ratio of 2:1. They decide to admit Mohan for 1/4th share in profits with a guaranteed amount of ₹ 25,000. Both Kavita and Lalita undertake to meet the liability arising due to the guaranteed amount to Mohan in their respective profit sharing ratio. The firm earned profits of ₹ 76,000 for the year 2022-23. The deficiency borne by Kavita is:

2023: 11 June Shift 3

Hidden Goodwill is :

2025: 26 May Shift 2

Which of the following is not a method of valuation of goodwill?

2023: 20 June Shift 2

A and B are partners sharing profits in the ratio of 2:1. C is admitted for the 1/4th share of profits, who brings Rs.20,000 as capital. After all adjustments related to goodwill, revaluation of assets and reassessment of liabilities etc, Capital of A and B are Rs.45,000 and Rs.15,000 respectively. It is agreed that partners capitals should be according to the new profit sharing ratio.

Determine the new capital of B.

Super profit is -

Solution

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