Question 19 Chapter 3 of Class 12 Part – 1 Usha Publication

Question 19 Chapter 3 of Class 12 Part – 1 Usha Publication

18. (Avg Profit/ Super Profit/Capitalisation method) The following information relates to a partnership firm:

a. Profits for the last six years:- 2013: Rs.18,000(loss); 2014: Rs.30,000; 2015: Rs.25,000; 2016: Rs.55,000; 2017: Rs.65,000; 2018: Rs.95,000

b. Average capital employed Rs.3,00,000

c. Normal rate of profit is 10%
Find the value of goodwill on the following basis:

a. Four years purchase of average profit

b. Four years purchase of super profit

c. Capitalization of super profit.

The solution of Question 19 Chapter 3 of Class 12 Part – 1 Usha Publication: -

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i) Calculation of Goodwill with average Profit

Number of years’ purchase	=	3
Goodwill	=	Average Profit  X Number of years’ purchase
	=	42,000 X 4
Goodwill	=	1,68,000

ii) Four years purchase of super profit.

Number of years’ purchase	=	4
Goodwill	=	Super Profit  X Number of years’ purchase
	=	12,000 X 4
Goodwill	=	48,000

iii) On the basis of Capitalisation of Super Profit.

Goodwill	=	Super Profit	X	100
				Normal Rate of Return
	=	12,000	X	100
				10
	=	1,20,000

Working Notes: -

*1 Calculation of Average Profit

Average Profit	=	Profit for past given years
		Number of years
	=	(-18,000) + 30,000+ 25,000 + 55,000 + 65,000+ 95,000
		6
	=	2,52,000
		6
	=	42,000

*2 Calculation of Super Profit

Normal Profit	=	Capital Employed	X	Normal Rate of Return
				100
	=	3,00,000	X	10
				100
	=	30,000

Super Profit	=	Actual Profit  - Normal Profit
	=	42,000 - 30,000
	=	12,000

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