J and K are partners in a firm. Their capitals are: j Rs. 3,00,000 and K Rs. 2,00,000. During the year ended 31st March, 2010 the firm earned a profit of Rs. 1,50,000. Assuming that the normal rate of return is `20%`, calculate the value of goodwill of the firm:
(i) By Capitalisation Method: and
(ii) By Super Profit Method if the goodwill is valued at 2 years' purchase of super profit.

Explanation

(i) Capitalisation Method:
Total Capitalised Value of the Firm `= ("Average Profit " xx 100)/("Normal Rate of Return")`
` " " = (Rs. 1,50,000 xx 100)/(20)=Rs. 7,50,00`
Goodwill = Total Capitalised Value of Business - Capital Employed
` " " ` = Rs. 7,50,000 - Rs. 5,00,000* = Rs. 2,50,000.
*Captial Employed = Capitals of J and K = Rs. 3,00,000 + Rs. 2,00,000 = Rs. 5,00,000.
(ii) Super Profit Method:
Normal Profit = Capital Employed `xx` Normal Rate of Return /100
` " " ` = Rs. 5,00,000 `xx` 20/100 = Rs. 1,00,000
Average Profit = Rs. 1,50,000
Super Profit = Average Profit - Normal Profit
` " " ` = Rs. 1,50,000 - Rs. 1,00,000 = Rs. 50,000
Goodwill = Super Profit `xx` Number of Years' Purchase
` " " ` = Rs. 50,000 `xx` 2 = Rs. 1,00,000.