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✦ FREE LEARNING — CLASS 11 & 12 — CBSE · PSEB — ACCOUNTS · ECONOMICS · BST ✦
A firm earns a profit of ₹5,00,000. The normal rate of return in a similar type of business is 10%. The value of total assets (excluding goodwill) and total outsiders’ liabilities as on the date of valuation are ₹55,00,000 and ₹14,00,000 respectively. Calculate the value of goodwill according to the Capitalisation of Super Profit Method as well as the Capitalisation of Average Profit Method.
Capital Employed = Assets – Outsiders’ Liabilities = ₹55,00,000 – ₹14,00,000 = ₹41,00,000.
Normal Profit = ₹41,00,000 × 10% = ₹4,10,000.
Super Profit = ₹5,00,000 – ₹4,10,000 = ₹90,000.
(i) Capitalisation of Super Profit: Goodwill = ₹90,000 × 100 / 10 = ₹9,00,000.
(ii) Capitalisation of Average Profit: Capitalised Value = ₹5,00,000 × 100 / 10 = ₹50,00,000; Goodwill = ₹50,00,000 – ₹41,00,000 = ₹9,00,000.
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.31 - 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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