Bharat and Bhushan are partners in a retail business. Balances in Capital and Current Accounts as on 31st March, 2019 were:
`{:(,"Capital Account", "Current Account"),("Bharat","Rs. 2,00,000","Rs. 50,000"),("Bhushan","RS. 2,40,000","Rs. 10,000(Dr.)"):}`
The firm earned an average profit of Rs. 90,000. If the normal rate of return is `10%` find the value of goodwill.

Explanation

Capitalised Value of the Business `= ("Average Profit " xx 100)/("Normal Rate of Return") = (Rs. 90,000 xx 100)/(10)=Rs. 9,00,000`
Capital Employed = Rs. 2,00,000 + Rs. 2,40,000 + Rs. 50,000 - Rs. 10,000 = Rs. 4,80,000
Goodwill = Rs. 9,00,000 - Rs. 4,80,000 = Rs. 4,20,000.