Beruflich Dokumente
Kultur Dokumente
Amount
1,50,000 ( Profit)
II
2,25,000 ( Profit )
III
75,000 ( Loss)
IV
2,00,000 (Profit )
2,50,000 ( Profit )
Total Profit
Number of Years
3. Calculation of Goodwill
Under average profit method, goodwill is valued at certain
number of years purchase of average profit. Thus goodwill
can be calculated by using the following formula.
Goodwill= Average X Number of years purchase
Average profit as calculated in step no. 2 is Rs. 1, 50,000/and of goodwill is valued at three years purchase of
average profit hen goodwill will be as under:
Goodwill = Average Profit X No. of years purchase
Goodwill = Rs. 1, 50,000 X
3. Calculation of Super Profit:Super profit is the profit earned by the business concern
over and above the normal profit on capital employed. It
denotes extra earning of the firm. In other words, it is
nothing but the excess of average profit over the normal
profit.
Eg. The normal earning rate of Amar & company is 155 on
capital employed of Rs. 4,00,000/- therefore the normal
profit or earning is Rs. 60,000/- If its actual profit or earning
is Rs. 1,00,000/-, Amar & company has earned super profit
of Rs.40,000 (1,00,000- 60,000)
Thus super profit is calculated as per the following
formula.
Super Profit= Average profit Normal Profit
4. Calculation of goodwill:Under super profit method, goodwill is valued at certain
number of years purchase of super profit. It is calculated as per
the following formula.
Goodwill = Super profit X Number of years purchase
(Obviously if there is no super profit, the firm will have no
goodwill)
A) Extra Premium Method :Under this method incoming partner his proportionate share
of goodwill in cash and it may be retained in the business
or withdrawn by old partners from the business.
i)
ii)
withdrawn)
To Cash/Bank A/c
(Being goodwill withdrawn by old partners)
iii)
B) Valuation Method:Under this method new partner does not bring the amount
of goodwill in cash. So old partners create/raise the Goodwill A/c
in the books of the firm at the time of admission of partner. The
following is the accounting treatment of goodwill as per this
method.
i)
When the new partner does not bring the goodwill in cash
and it is raised in the books of the firm:
The following journal entry is passed.
d) Goodwill A/c...Dr.
To Old partners capital/ current A/c (In old Ratio)
(Being goodwill credited to old partners)
ii)
a)
Goodwill A/c...Dr.
To Old partners capital/ current A/c (In old Ratio)
(Being goodwill rose in the books of the firm)
ratio)
To goodwill A/c
(Being goodwill written off)
iii)
ii)
Goodwill A/cDr.
To All Partners capital A/c
(Being goodwill created and credited to all partners capital
To goodwill A/c
(Being raised goodwill written off and debited to continuing
partners capital account in their new ratio)
iii)
iv)
If goodwill is given in the old balance sheet. The net result of its
CONCLUSION
When a new partner is admitted into a partnership, certain
adjustments in accounts become necessary. Chiefly, this is because
the new partner will acquire a share in the profits of the firm and
because of this; the old partners will stand to lose.
Goodwill is compensation to old partners for their sacrifice in
connection with admission of a new partner. So it is to be credited to
the partners according to their profit sacrificing ratio. Whatever
shares the new partner is getting, it may be sacrificed by the old
partners in proportion to their old profit sharing ratio or in different
proportion.
In case of Retirement of a partner, the continuing partners will
gain in terms of profit sharing ratio. Therefore, they have to pay to
retiring partner for his share of goodwill in the firm in the gaining ratio.
Similarly, in case of death of the partner, the continuing partner should
bear the share of goodwill due to the heirs of the deceased partner.
For this purpose, the goodwill is valued on the date of the retirement
or death and adjusted through the capital accounts of the partners.
and some others would gain. Those who are sacrificing future profit
should be compensated by the others who are gaining. This
adjustment of the partnership rights may arise due to admission of a
new partner, change in the profit sharing ratio, retirement or death of
a partner and dissolution of the partnership. The partners, who gain in
terms of profit sharing ratio, have to pay for such gain as a proportion
to the value of goodwill. The partners, who lose in terms of profit
sharing ratio, receive payments for the sacrifice as a proportion to the
value of goodwill.
REFERENCES
1) Book-keeping and Accountancy standard XII
Maharashtra State Board of Secondary and Higher Secondary
Education
2) Fundamentals of Accounting
Board of Studies,
The Institute of Charted Accounts of India