Q.No.21 | Chapter 3 – Goodwill: Nature and Valuation | T.S. Grewal 12 Class Book Keeping Part - A - Vol. 1

Question 21 Chapter 3 of +2-A

Super Profit Method

21. Average profit earned by a firm is 80,000 which includes undervaluation of stock of 8,000 on an average basis. The capital invested in the business is 8,00,000 and the normal rate of return is 8%. Calculate goodwill of the firm on the basis of 7 times the super profit.

The solution of Question 21 Chapter 3 of +2-A:

Super Profit	=	Actual average Profit- Normal Profit
Actual average Profit	=	Average Profit + Adjustments (if any)
	=	80,000 + 8,000 (Undervaluation of Stock)
	=	88,000

 

Normal Profit	=	Capital Employed	X	Normal Rate of Return
				100

=	8,00,000	X	8
			100
=	64,000

 

Super Profit	=	88,000 - 64,000
	=	24,000

Number of years’ purchase = 7

Goodwill	=	Super ProfitX number of years of purchase
Goodwill	=	24,000 X 7
Goodwill	=	1,68,000

T.S. Grewal’s Double Entry Book Keeping +2 (Vol. I: Accounting for Not-for-Profit Organizations and Partnership Firms)

• Chapter No. 1 – Financial Statement of Not-For-Profit Organisations
• Chapter No. 2 – Accounting for Partnership Firms – Fundamentals
• Chapter No. 3 – Goodwill: Nature and Valuation
• Chapter No. 4 – Change in Profit-Sharing Ratio Among the Existing Partners
• Chapter No. 5 – Admission of a Partner
• Chapter No. 6 – Retirement/Death of a Partner
• Chapter No. 7 – Dissolution of a Partnership Firm

T.S. Grewal’s Double Entry Book Keeping (Vol. II: Accounting for Companies)

• Chapter No. 8 – Company Accounts –  Accounting for Share Capital
• Chapter No. 9 – Company Accounts – Issue of Debentures
• Chapter No. 10 – Redemption of Debentures

T.S. Grewal’s Double Entry Book Keeping (Vol. II: Accounting for Companies)

• Chapter No. 1 – Financial Statements of a Company
• Chapter No. 2 – Financial Statement Analysis 
• Chapter No. 3 – Tools of Financial Statement Analysis – Comparative Statements and Common- Size Statements
• Chapter No. 4 – Accounting Ratios
• Chapter No. 5 – Cash Flow Statement

 

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