Varun and Kuber are partners in a business. Balance in Capital and Current Accounts on 31st March, 2019 were :
`{:(,"Capital Account","Current Account"),("Varun"," Rs. 5,00,000"," Rs. 80,000"),("Kuber"," Rs. 3,50,000"," Rs. 20,000 (Dr.)"):}`
Profits of the last five consecutive years ending 31st March were : 2015 Rs. 60,000, 2016 Loss Rs. 40,000, 2017 Rs. 1,30,000, 2018 Rs. 2,00,000 and 2019 Rs. 2,50,000.
General Reserve appeared in the books at Rs. 50,000.
If the normal rate of return is 10%, find the value of goodwill by Capitalisation of Average Profit Method.

Explanation

Average Profits `= (60,000-40,000 + 1,30,000+2,00,000 + 2,50,000)/(5)=Rs. 1,20,000`
Capitalised Value of Average Profits = Average Profit `xx(100)/("Normal Rate of Retuen")`
`=1,20,000xx(100)/(10)=Rs. 12,00,000`
Capital Employed = Capital Accounts + Current Accounts + General Reserve
`= Rs. 5,00,000+Rs. 50,000 + Rs. 80,000 -Rs. 20,000 + Rs. 50,000`
`= Rs. 9,60,000`
Goodwill = Capitalised Value of Average Profits - Capital Employed
`= Rs. 12,00,000 - Rs. 9,60,000 = Rs. 2,40,000.