
Question 11 Chapter 3 of +2-Part-1
11. (Super Profit Method) A firm earned net profit during the last five years as follows:
(i) Rs.7,000; (ii) Rs.6,500; (iii) Rs.8,000; (iv) Rs.7,500; (v) Rs.6,000. The capital investment of the firm is Rs.40,000. A fair return on capital in the market is 12%. Find out the value of goodwill of the business if it is based on three years purchase of average super-profits of the past five years.
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The solution of Question 11 Chapter 3 of +2 Part-1: –
Super Profit | = | Actual average Profit – Normal Profit |
Average Profit | = | Total Profit for past given years |
Number of years | ||
= | 7,000 + 6,500 + 8,000 + 7,500 + 6,000 | |
5 | ||
= | 35,000 | |
5 | ||
= | 7,000 |
Average Profit | = | Capital Employed | X | Normal Rate of Return |
100 | ||||
= | 40,000 | X | 12 | |
100 | ||||
= | 4,800 |
Super Profit | = | 7,000 – 4,800 |
= | 2,200 | |
Number of years’ purchase | = | 3 |
Goodwill | = | Super Profit X Number of years’ purchase |
Goodwill | = | 2,200 X 3 |
Goodwill | = | 6,600 |
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Also, Check out the solved question of previous Chapters: –
Usha Publication – Accountancy PSEB (Class 12) – Volume I – Solution
- Chapter No. 1 – Accounting Not for Profit Organisations
- Chapter No. 2 – Partnership Accounts – I
- Chapter No. 3 – Partnership Accounts – II (Introduction)
- Chapter No. 4 – Partnership Accounts – III (Goodwill: Nature and Valuation)
- Chapter No. 5 – Partnership Accounts – IV (Reconstitution of Partnership)
- Chapter No. 6 – Partnership Accounts – V (Admission of A Partner)
- Chapter No. 7 – Partnership Accounts – VI (Retirement and Death of A Partner)
- Chapter No. 8 – Company Accounts (Share Capital)
- Chapter No. 9 – Company Accounts (Issue of Debentures)
- Chapter No. 10 – Company Accounts (Redemption of Debentures)
Usha Publication – Accountancy PSEB (Class 12) – Volume II – Solution
- Chapter No. 1 – Financial Statements of a Company (Balance Sheet Only)
- Chapter No. 2 – Techniques of Financial Statement Analysis
- Chapter No. 3 – Ratio Analysis
- Chapter No. 4 – Cash Flow Statement
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