Pearl and Ruby were partners in a firm with a combined capital of ₹ 2,50,000. The normal rate of return was 10%. The profits of the last four years…

Calculation of Normal Adjusted Profit Year Profit (₹) Adjustment (₹) Adjusted Profit (₹) $\displaystyle 2019$-$\displaystyle 20$ $\displaystyle 35,000$ - $\displaystyle 35,000$ $\displaystyle 2020$-$\displaystyle 21$ $\displaystyle 25,000$ - $\displaystyle 25,000$ $\displaystyle 2021$-$\displaystyle 22$ $\displaystyle 32,000$ - $\displaystyle 32,000$ $\displaystyle 2022$-$\displaystyle 23$ $\displaystyle 33,000$ $\displaystyle (5,000)$ $\displaystyle 28,000$ TOTAL $\displaystyle 1,20,000$ Average Profit= (Total Adjusted Profit)/ No. of years = $\displaystyle 1,20,000$/$\displaystyle 4$ = ₹$\displaystyle 30,000$ Normal Profit= Capital Employed x Normal Rate of Return $\displaystyle 100$ = $\displaystyle 2,50,000$ x $\displaystyle 10$ = ₹$\displaystyle 25,000$ $\displaystyle 100$ Super Profit = Average Profit – Normal Profit = $\displaystyle 30,000$ - $\displaystyle 25,000$ = ₹$\displaystyle 5,000$ Goodwill= Super Profit x No. of years’ purchase = $\displaystyle 5,000$ x $\displaystyle 3$ = ₹$\displaystyle 15,000$