Goodwill calculate
This query is : Resolved
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.
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.
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.
Hence, Goodwill = (12 lakh + 10 lakh) × 3 = ₹66 lakh is the correct method.
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