GOODWILL QUESTION WITH ANSWER


1. The firm’s average profit before charging partner’s remuneration was `. 25,000. Total investment of the partners in a firm was `. 80,000. Rate of return in similar business was 20%. Partner’s remuneration was `. 5,000. Goodwill to be valued at two year’s purchase of super profit. Find out value of goodwill.                (5)

            Average Profit =  25,000
            F.M.P.  =  Average Profit   -   25,000
                        Less: Remuneration-    5,000
                                    F.M.P.             20,000
            Capital Employed =  80,000
            N.R.R. =  20%
            Normal Profit =  Capital employed  ´  N.R.R.
                                                            100
                                    =  80,000  ´  20           =  16,000
                                                100
            Super Profit     =  F.M.P. – Normal Profit
                                    =  20,000 – 16,000
                                    = 4,000
            Goodwill          =  Super Profit  ´  No. of years purchased
                                    =  4,000  ´  2
                                    =  8,000