Question 11 Chapter 3 of +2- Usha
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.
The solution of Question 11 Chapter 3 of +2- Usha: –
Formula to calculate the Value of Goodwill with Super Profit:
| Goodwill | = |
Super Profit X Number of years’ purchase |
Numbers of years’ of Purchase is given So firstly we have to calculate super profit with the help of following formula:
| Super Profit | = |
Actual Average Profit – Normal Profit |
To calcuate super profit we have to calculate the Actual Average profit and Normal Profit as following:
Calculation of Average 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 | ||
| Average Profit | = | 7,000 |
Calculation of Normal Profit: –
| Normal Profit | = | Capital Employed | X | Normal Rate of Return |
| 100 | ||||
| = | 40,000 | X | 12 | |
| 100 | ||||
| Normal Profit | = | 4,800 |
Calculation of Super Profit:
| Super Profit | = | Actual Average Profit – Normal Profit |
| = | 7,000 – 4,800 | |
| Super Profit | = | 2,200 |
|
Number of years’ purchase |
= | 3 (Given) |
Calculation of Value of Goodwill with Super Profit:
| Goodwill | = | Super Profit X Number of years’ purchase |
| = | 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 (Introduction)
- Chapter No. 3 – Partnership Accounts – II (Goodwill: Nature and Valuation)
- Chapter No. 4 – Partnership Accounts – III (Reconstitution of Partnership)
- Chapter No. 5 – Partnership Accounts – IV (Admission of A Partner)
- Chapter No. 6 – Partnership Accounts – V (Retirement and Death of A Partner)
- Chapter No. 7 – Partnership Accounts – VI (Dissolution of Partnership Firm)
- 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
- Chapter No. 2 – Financial Statement Analysis
- Chapter No. 3 – Tools of Financial Statement Analysis- Comparative and Common Size
- Chapter No. 4 – Ratio Analysis
- Chapter No. 5 – Cash Flow Statement
Check out T.S. Grewal +2 Book 2020@ Official Website of Sultan Chand Publication
