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

M/S ________________
Valuation of Goodwill
Super Profit Method 

              

            
Average Profit =  25,000

            
Average Profit  =                                    25,000

            
Less: Remuneration =                           - 5,000

            
Future .Maintainable .Profit. (F.M.P)  =  20,000

            
Capital Employed =  80,000

           

N.R.R. =  20%

            
Normal Profit =  (Capital employed  ´  N.R.R) / 100

                                                            

                                    
=  (80,000  ´  20 )/100
          
= Rs. 16,000

                                                

            
Super Profit     =  F.M.P. – Normal Profit

                                    
                        = 20,000 – 16,000

                                    
                       = Rs.  4,000

            
Goodwill   =  Super Profit  ´  No. of years purchased

                                    
                 =  4,000  ´  2

                                   
                 =  Rs. 8,000