Goodwill calculate

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PARESH AHUJA (Querist)
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04 June 2025 Understanding of goodwill, I want to ask if partnership firm readjust share ratio.
Suppose firm average Net profit 12 lakh after partner's interest on capital ( 10 lakh).
So, question is that in goodwill calculation
Average Profit X year purchase ( 3 years)
ie 12 lakh x 3 year = 36 Lakh
Or
(Average profit + partners interest on capital) X year purchase
ie ( 12 lakh + 10 lakh) X 3 year = 66 lakh
Which method is correct.
Please solve the query.

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
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12 August 2025 You add back partner’s interest on capital to average profit because goodwill is based on profits before charging interest on capital.

Hence, Goodwill = (12 lakh + 10 lakh) × 3 = ₹66 lakh is the correct method.

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