Question 14 Chapter 3 - Unimax Class 12 Part 1 - 2021

Question 14 Chapter 3 – Unimax Class 12 Part 1

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The solution of Question 14 Chapter 3 – Unimax Class 12 Part 1:

T.S. Grewal’s Double Entry Book Keeping (Vol. II: Accounting for Companies)

14. The average net Profits expected in future by firm are Rs. 30000 per year. The average Capital employed in business by firm is Rs. 200000. The normal rate of return on the capital employed in similar business is 10%. Calculate goodwill of the firm by
1. Super Profit method on the basis of two year’s purchase.
2. Capitalization Method.

The solution of Question 14 Chapter 3 – Unimax Class 12 Part 1:

Super Profit Method
Average Expected Net Profits in future = Rs. 30000
Actual Capital employed = Rs. 200000
Normal rate of return = 10%
Normal profits = Capital employed X Normal rate of return
= Rs. 200000 X 10/100
= Rs. 20000
Super Profits = Average Profits – Normal Profits
= Rs. 30000 – Rs. 20000
= Rs. 10000
Goodwill = Rs. 10000 X 2 years
= Rs. 20000

2. Capitalization Method :
Capitalization of Average Profits = Average Profits/Normal rate of return
= Rs. 30000/10/100 or Rs. 30000 X 100/10
= Rs. 300000
Goodwill = Capitalized Profits – Average Capital employed
= Rs. 300000 – Rs. 200000
= Rs. 100000