Amit and Kartik are partners sharing profits and losses equally. They decided to admit Saurabh for an equal share in the profits. For this purpose the goodwill of the firm was to be valued at four years’ purchase of super profits.

The Balance Sheet of the firm on Saurabh’s admission was as follows:

LiabilitiesAmount (Rs.)AssetsAmount (Rs.)
Capitals : Machinery75,000
      Amit        90,000 Furniture15,000
     Kartik      50,0001,40,000Stock30,000
Reserve20,000Sundry Debtors20,000
Sundry Creditors5,000  

The normal rate of return is 12% per annum. Average profit of the firm for the last four years was Rs.  30,000. Calculate Saurabh’s share of goodwill.

Marks-3, CBSE:2017-18/Comp/Q-7

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