Question 20 Chapter 3 of +2 Part-1 – USHA Publication 12 Class Part – 1

Question 20 Chapter 3 of +2- Part-

Question 20 Chapter 3 of +2-Part-1

20. (Super Profit/Capitalisation method) A firm earns a profit of Rs.5,000 per year. The average capital employed in the business by the firm is Rs.25,000. The normal rate of return on the capital employed in similar business is 10%.
You are required to calculate goodwill of the firm by
Super profit method on the basis of three years purchase.
Capitalisation method (Both super profit & average profit).

 

The solution of Question 20 Chapter 3 of +2 Part-1: – 

Actual Profits p.a = Rs.5,000
Capital Employed = Rs. 25,000
Rate of return = 10%

 

Normal Profit = Capital Employed X Normal Rate of Return
  100
         
  = 25,000 X 10
  100
         
  = 2,500    

i) Super Normal Profit Method

Super Profit = Actual Profit – Normal Profit
  = 5,000 – 2,500
  = 2,500

 

Number of years’ purchase = 3
Goodwill = Super Profit X Number of years’ purchase
  = 2,500 X 3
  = 7,500

 

ii) Capitalisation Method:

a) Capitalisation of Super Profits Method:

Goodwill = Super Profit X 100
  Normal Rate of Return
         
  = 2,500 X 100
  10
         
  = 25,000    

b) Capitalisation of Average Profits Method:

Goodwill = Super Profit X 100
  Normal Rate of Return
         
  = 5,000 X 100
  10
         
  = 50,000    
Super Profit = Capitalised value of the business – Average Capital Employed
  = 50,000 – 25,000
  = 25,000

 

Thanks, Please Like and share with your friends  

Comment if you have any questions.

Also, Check out the solved question of previous Chapters: –

Usha Publication – Accountancy PSEB (Class 12) – Volume I – Solution

Usha Publication – Accountancy PSEB (Class 12) – Volume II – Solution

 

Check out T.S. Grewal +2 Book 2020@ Official Website of Sultan Chand Publication

2 Book 1 min - Question 20 Chapter 3 of +2 Part-1 - USHA Publication  12 Class Part - 1
Vol. I: Accounting for Not-for-Profit Organizations and Partnership Firms

Leave a Reply