Mr. Manas gives the following particulars in respect of business carried on by him: Particulars Amount (₹) Capital Invested in business 9,00,000…

CA Foundation · Accounting · MTP · May 2026
Mr. Manas gives the following particulars in respect of business carried on by him: Particulars Amount (₹) Capital Invested in business 9,00,000 Market rate of interest on investment 8% Rate of risk return on capital invested in business 3% Remuneration per annum from alternative employment of proprietor if he was not engaged in business 36,000 The business earned profits of 2,40,000,2,16,000 and - 3,00,000 in the years 2022, 2023 and 2025 respectively but made a loss of 36,000 in the year 2024. Compute the value of Goodwill on the basis of 6 years' purchase of super profits of the business, calculated on the basis of average profit of last four years .

Suggested Answer and Working Notes:

Computation of Goodwill of Mr. Manas Particulars Amount ₹ Average maintainable profits: Trading profit during 2022 2,40,000 2023 2,16,000 2025 3,00,000 7,56,000 Less: Loss during 2024 (36,000) Total 7,20,000 Average Profits (₹ 7,20,000 / 4) 1,80,000 Less: Remuneration for the proprietor (36,000) Average maintainable Profit 1,44,000 Less: Normal Profit (11% on capital employed of 9,00,000) (99,000) Super Profit 45,000 Goodwill at 6 year’s purchase of Super Profit 2,70,000

Topics: Treatment of Goodwill in Partnership Accounts

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