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✦ FREE LEARNING — CLASS 11 & 12 — CBSE · PSEB — ACCOUNTS · ECONOMICS · BST ✦
From the following particulars, calculate the value of goodwill of a firm by applying the Capitalisation of Average Profit Method: (i) Profits of the last five consecutive years ending 31st March are: 2025 ₹54,000; 2024 ₹42,000; 2023 ₹39,000; 2022 ₹67,000 and 2021 ₹59,000. (ii) Capitalisation rate 20%. (iii) Net assets of the firm ₹2,00,000.
Average Profit = (₹54,000 + ₹42,000 + ₹39,000 + ₹67,000 + ₹59,000) / 5 = ₹2,61,000 / 5 = ₹52,200.
Capitalised Value = Average Profit × 100 / Capitalisation Rate = ₹52,200 × 100 / 20 = ₹2,61,000.
Goodwill = Capitalised Value – Net Assets = ₹2,61,000 – ₹2,00,000 = ₹61,000.
Accounting & Commerce Educator
Sarbjit Singh holds a B.Com and M.Com degree and has over 12 years of teaching experience in double entry bookkeeping, financial accounting, and business studies.
This guide covers "T.S. Grewal Class 12 Chapter 2 Q.29 - Nature and Valuation of Goodwill", focusing on key definitions, step-by-step concepts, applications, and revision guidelines relevant to Chapter 2 - Nature and Valuation of Goodwill.
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