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✦ FREE LEARNING — CLASS 11 & 12 — CBSE · PSEB — ACCOUNTS · ECONOMICS · BST ✦
A business has earned an average profit of ₹4,00,000 during the last few years and the normal rate of return in similar business is 10%. Find the value of goodwill by: (i) the Capitalisation of Super Profit Method; and (ii) the Super Profit Method if the goodwill is valued at 3 years’ purchase of super profits. The assets of the business were ₹40,00,000 and its external liabilities ₹7,20,000. (Delhi 2013)
Capital Employed = Assets – External Liabilities = ₹40,00,000 – ₹7,20,000 = ₹32,80,000.
Normal Profit = ₹32,80,000 × 10% = ₹3,28,000.
Super Profit = Average Profit – Normal Profit = ₹4,00,000 – ₹3,28,000 = ₹72,000.
(i) Capitalisation of Super Profit: Goodwill = Super Profit × 100 / Normal Rate of Return = ₹72,000 × 100 / 10 = ₹7,20,000.
(ii) Super Profit Method: Goodwill = Super Profit × 3 = ₹72,000 × 3 = ₹2,16,000.
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.30 - 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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